The U.S. trade deficit hit a record in February as the country’s economic activity rebounds faster than its global rivals and could remain elevated this year as a massive fiscal stimulus is expected to spur the fastest growth in nearly four decades.
The economy is roaring ahead as a surge in COVID-19 vaccines and the White House’s $1.9 trillion pandemic rescue package boost domestic demand, some of which is being satiated by imports. President Joe Biden last week proposed a $2 trillion infrastructure plan, which is expected to attract even more imports and trigger economic growth.
“The deficit could remain large this year and next due to fiscal stimulus and the potential infrastructure package that could be passed in the second half of this year,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “As the economy continues to strengthen, this will keep the deficit broad-based.”
The trade deficit soared 4.8% to a record $71.1 billion in February, according to data from the Commerce Department. Economists had forecast a deficit of $70.5 billion. The goods trade gap was also the highest on record.
Exports fell 2.6% to $187.3 billion. Goods exports fell 3.5% to $131.1 billion, likely affected by unusually cold weather in much of the country. The decline was led by shipments of capital goods, which fell by $2.5 billion.
Exports of consumer goods fell, as did exports of motor vehicles, parts and engines. There were also fewer food exports. The pandemic continued to be a drag on services exports, especially travel.
Imports fell 0.7% to $258.3 billion. Imports of goods fell by 0.9% to $219.1 billion. This drop probably reflects supply chain constraints rather than weak domestic demand. In fact, imports of capital goods reached a record high, driven by civilian aircraft, medical equipment and electrical equipment, among others.
Imports of industrial supplies and materials were the highest since October 2018, thanks to $1 billion worth of crude oil imports. That caused the U.S. to post its first oil deficit since December 2019.
But imports of motor vehicles, parts and engines declined as did imports of consumer goods. The reduction in trade flows in February was due in part to inclement weather and logistical and transportation problems at ports.
“Congestion at the ports of Los Angeles and Long Beach, which together account for one-third of U.S. container imports, caused container ships to anchor offshore while waiting for available port space,” said Jay Bryson, chief economist at Wells Fargo Securities in Charlotte, North Carolina.
“Even when ships are docked and unloaded, port executives report higher-than-normal container dwell time, or the time it takes importers to pick up their cargo from the port.”
Following the recent six-day blockade of the Suez Canal, economists expect trade flows to remain depressed in March.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury bond prices were mostly higher.
A Drag on Growth
Adjusted for inflation, the goods trade deficit soared to a record $99.1 billion in February, up from $96.1 billion in January. The so-called real trade deficit is well above the average for the October-December period.
JPMorgan economists estimate that trade could subtract a percentage point from GDP growth in the first quarter, which would be the third consecutive quarterly drag.
But that is unlikely to dent first-quarter GDP growth estimates, which currently stand at an annualized rate of 10%. The economy grew at a 4.3% pace in the fourth quarter.
Economists forecast that growth this year could exceed 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, the worst performance in 74 years. The International Monetary Fund expects the global economy to expand by 6% this year, driven mainly by the U.S. economy, which the fund estimates will grow by 6.4%.
From the labor market to the hard-hit manufacturing and service sectors, activity accelerated sharply in March.
But the housing market, one of the stars of the pandemic, is showing signs of fatigue.
A separate report from the Mortgage Bankers Association (MBA) on Wednesday showed applications for loans to buy a home fell 4.6% last week, dropping for a second straight week.
According to the MBA, the 30-year mortgage fixed rate has risen to 3.36%, a 10-month high. That, combined with higher house prices due to an acute shortage of properties, is making home-ownership more expensive for some first-time buyers.
“With inventory at record lows and affordability increasingly stretched thanks to rapid house price gains, we expect home purchase demand will trend down this year,” said Matthew Pointon, senior property economist at Capital Economics in New York.