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US Trade Deficit Plunges, Factory Orders Gain

Posted by Joseph Trevisani on Apr 2, 2015 10:16:00 AM

The U.S. trade deficit dropped to its lowest level in five years as imports and exports fell, while factory orders rebounded from six months of decline. 

The international trade balance fell 16.9 percent, $7.3 billion in February, to $35.4 billion. It was the largest monthly decrease since June 2013 and the lowest total since October 2009. Economists had predicted a $41.2 billion deficit. 

Factory orders rose 0.2 percent in the month, far better than the -0.4 percent forecast, but the January result was revised down to -0.7 percent from -0.2 percent. It was the first rise in orders since last July. Annual orders were off 4.3 percent in February, worse than January’s 2.8 percent decline for the biggest yearly drop since November 2009. 

Exports fell 1.6 percent in February to $186.25 billion. But it was the 4.4 percent decline in imports, $10.2 billion, to $221.69 billion, the smallest amount of imported goods in three and a half years, that reduced the deficit to its half decade low.

The decline in both exports and imports suggest that the months long labor slowdown at the port of Los Angeles, the single largest point of entry for foreign goods, may have played a part as shipments were unable to enter or leave the country normally. The labor dispute is now settled. 

Exports were hit by the rising dollar which makes U.S goods more expensive overseas and the general slowdown in global demand. 

But the almost three times greater fall in imports, despite the added purchasing power of the ascendant dollar, hints that more than just shipping delays are responsible. Consumers may be choosing not to spend and to pay down existing debt, a fact borne out by the three months decline in retail sales and the rise to the saving rate to 5.8 percent in February, the highest in three years

Lower oil prices and declining crude oil importation in the face of rising U.S. oil production likely impacted imports as well. Petroleum imports in February were the lowest since September 2004.

Exports to Canada and Mexico, the largest U.S. trading partners, shrank in February. Exports to China dropped 8.9 percent, those to the European Union were unchanged.

Imports from China tumbled 18.1 percent, propelling the U.S.-China trade deficit down 21.2 percent to $22.5 billion, a potential problem for the rapidly slowing Chinese economy. 

The smaller than expected trade deficit is a plus for GDP as the deficit subtracts from growth in the Commerce Department’s statistics.

The Atlanta Federal Reserve’s GDPNow model, incorporating today’s statistics, moved to a 0.1 percent annualized estimate for first quarter GDP from its 0.0 percent estimate yesterday. The U.S. economy slowed sharply from the 5.0 percent growth in the third quarter to 2.2 percent in the fourth. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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