The advance nominal-goods trade deficit widened sharply in April to a six-month high. It widened $14.1 billion in April to $96.8 billion from $82.7 billion in March, according to data from the U.S. Census Bureau. This was worse than the consensus expectation for a slight narrowing to $85.9 billion. Exports fell 5.5% in April from the prior month while imports rose 1.8%. 

Exports of industrial supplies fell 9.8% on the month as weaker-than-expected Chinese data in recent months point to a slow domestic economic recovery after the reopening bump; China is the world’s largest oil importer. Industrial supplies exports fell 15.5% in April from twelve months earlier. U.S. crude oil output will likely decline further over the next few months weighing on the exports of industrial supplies. The count of oil drilling rigs operating in the U.S., an indicator of future output, is down around 7% this year. 

Exports of manufactured goods also fell on the month. Capital goods exports declined 0.8% from March and consumer goods exports fell 7.4%. Automotive exports fell 2.1% on the month but were up 7.6% on the year. The headwinds to the vehicle industry from labor shortages and supply chain issues are improving and this will support automotive exports in the near term. 

Imports rose in April from March in every category except food and beverage (down 2.7%) and capital goods (down 0.2%). Inventories were a big drag on U.S. GDP growth in the prior quarter as consumer spending remained resilient and businesses liquidated inventories. Inventory restocking should support imports in the near term although high interest rates and deteriorating sentiment will weigh on inventory investment in the second half of the year. 

Trade was neutral for U.S. economic growth in the prior quarter but will likely be modestly negative for growth in the second quarter as a weak Chinese economy, high inflation and tight financial conditions outside the U.S. weigh on exports and U.S. imports slightly improve with easing global supply-chain networks.

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