The U.S. trade deficit unexpectedly grew in February, as surging imports overwhelmed a rush of record high exports. A widening trade gap is the opposite of what most analysts anticipated, as a weak dollar and slackening demand were supposed to have made trade the one bright spot in what is now almost certainly a recession.
The trade gap jumped 5.7% to $62.3 billion in February, up from a revised $59 billion the month prior, as cars, industrial machinery, and pharmaceuticals carried imports to a record high $213.7 billion.
Exports climbed 2.0% to $151.36 billion from $148.38 billion, but the increase still wasn’t enough to outpace imports, leaving analysts to wonder whether or not exports would be the saving grace of a U.S. economy that seems to have run head first into a recession.
Many economists, including those at the U.S. Federal Reserve, have said that foreign demand for U.S. goods would continue to prop up the ailing economy. The theory was supported by a weak dollar, and a drop-off in consumer spending that was expected to have suppressed demand for foreign goods.
"Net exports should continue to provide considerable support to U.S. economic activity in coming quarters," Federal Reserve Chairman Ben S. Bernanke said last week.
The Consumer Confidence Index declined 12 points in February, and retail sales dropped 0.6% for the month. The greenback was down 10% against a trade-weighted basket of currencies in the 12 months ended February, according to Bloomberg data.
The odds seemed so heavily stacked against a rise in imports that some analysts had trouble believing the Commerce Department’s report.
"I guess all the reports of consumers turning conservative were wrong," said Joel Naroff, president and chief economist at Naroff Economic Advisors. "It was also reported that businesses went out and bought lots of capital goods. Given the state of the economy, that doesn’t make much sense either. Maybe the importers got it wrong. Or maybe the data are a little suspect."
"It’s hard to believe that the jump in imports of consumer goods and motor vehicles, which led to the widening of the trade deficit, was anything more than a mistake in judgment," he added.
Whatever the case, analysts anticipate a significant drop in imports for the month of March as inventories rose and the price of oil hit a record high.
"Importers may have over-estimated consumer demand," David Resler, chief economist at Nomura Securities International Inc., told Bloomberg. "Inventories, some imported, are rising rapidly. That will signal domestic producers and importers will cut back."
Regardless of whether or not the trade deficit narrows in the months ahead,the problem remains that the economy may not get as much of a positive addition to first quarter growth from trade as hoped for. The advance estimate for first quarter gross domestic product (GDP) will be released April 30.