Trade Will Contribute to GDP Growth This Quarter

• The U.S. trade deficit narrowed in April to $87.1 billion from $107.7 billion in March, according to the Census Bureau.
• The goods deficit narrowed to $107.7 billion in April from $126.8 billion in March while the services surplus increased to $20.7 billion in April from $19.2 billion in March.
• Trade will contribute to GDP growth in the current quarter.

The U.S. trade deficit narrowed 19.1% in April, narrowing to $87.1 billion from the record-high $107.7 billion in March. This was better than the consensus expectation for a narrowing to $89.5 billion. The narrowing in April more than offsets the widening in March. 

The goods deficit narrowed to $107.7 billion in April from $126.8 billion in March while the services surplus increased to $20.7 billion in April from $19.2 billion in March. The total nominal value of exports rose 3.5% in April to $252.6 billion while the value of nominal imports declined 3.4% to $339.7 billion. The decline in imports in April was the first monthly decline in imports since July 2021. 

The food and beverage category led the way for goods exports, jumping 14.3% on the month. Industrial supplies rose 3.4%, capital goods increased 2.7% and consumer goods were up 2.0%.

The consumer category drove the decline in total goods imports. Consumer goods were down 7.7%, capital goods fell 3.5%, while automotive imports rose 4.3%. 

Services imports increased to a record $55.9 billion in April from $54.9 billion in March while services exports edged up to $76.1 billion from $74.1 billion. 

The trade deficit widened to record levels during the pandemic driven by a shift in consumer spending patterns away from services toward durable goods. The narrowing in the deficit in April was likely driven by softer manufacturing activity in China, which weighed on imports. Economic activity in China contracted sharply in April as the Caixin manufacturing and services PMIs dropped to the lowest level since February 2020.

Looking ahead, slower consumer spending growth in the U.S. through 2022 will put further downward pressures on imports. Retail sales growth in April in the U.S. was the weakest this year and the deceleration will likely continue through 2022 as high inflation and high interest rates weigh on consumer balance sheets. The U.S. economy surprisingly contracted in the first quarter of this year, but trade and consumer spending will lift GDP growth this quarter.

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