U.S. Trade Gap Widens on Surging Imports


Eric Morath

The Wall Street Journal

 WASHINGTON—A stronger dollar and an influx of pent-up imports into West Coast ports are pointing the U.S. economy toward its third quarterly contraction in its six-year-long expansion, reflecting choppy conditions that appear set to restrain growth throughout the year.

The nation’s trade deficit expanded by 43.1% in March from February, the largest monthly widening since 1996, the Commerce Department said Tuesday. A record level of non-petroleum imports flowed into the U.S. after a labor dispute at West Coast ports ended, causing the seasonally adjusted trade gap to widen to $51.37 billion.

That was significantly larger than economists had forecast, even with pressure from a strong dollar and weak global growth. As a result, revisions could push the official reading for first-quarter gross domestic product into negative territory from the paltry 0.2% annualized gain initially reported last week.

“The underlying story remains the same: Growth faltered at the start of the year with very few signs of momentum,” said Sterne Agee economist Lindsey Piegza.

After the trade report, economists at J.P. Morgan Chase and Deutsche Bank DB 0.44 % cut their first-quarter GDP growth estimates to show a 0.5% contraction. Forecasting firm Macroeconomic Advisers lowered its reading by six-tenths of a percent to a 0.4% contraction. All three had previously estimated a tiny expansion for the quarter.

The figures represent a setback for the U.S. economy, but it overcame a similar one that surfaced last year.

Following a contraction in the first quarter of 2014, the economy grew at an almost 4% pace for the rest of the year. And employers added jobs last year at the best rate since the mid-1990s, raising hopes that the long-awaited breakout had arrived.

Instead, the U.S. appears to have again hit the brakes at the start of the year. That exposes a host of concerns, including the drag on growth from a stronger dollar, persistent weakness among key trading partners in China and Europe and the reliance on U.S. consumers to drive the world’s economy.

“It’s really a global challenge right now,” said Marc Skalla, president of Atlanta-based SASCO Chemical Group Inc., which makes chemicals for tires and other industries. The firm expects sales to grow by 20% this year, but the stronger dollar is squeezing export profits.

A stronger dollar has “taken contracts that we worked on last year and completely changed them,” Mr. Skalla said. “We’ll feel it on the margins.”

From mid-2014 through the end of March, the dollar appreciated by more than 20% against a weighted index of major currencies tracked by the Federal Reserve. The Fed index shows the dollar’s value has fallen somewhat since early April, a move that could cushion exporters from some of the fallout.

The latest economic setback comes with plenty of caveats. Upcoming data on inventories and services could again recast the view of the first quarter. The domestic economy also appears to be relatively firm. Consumer confidence is rising, household spending picked up since the winter and lower oil prices are likely to boost many consumers and businesses this year.

March’s trade gap was the largest of the expansion, driven by a rebound after ports on the West Coast returned to normal following a monthslong labor dispute. That helped imports post a record 7.7% improvement on the month. Goods imports from China were up 32% compared with March 2014. Meanwhile, exports only inched up 0.9%.

The trade gap in February, when the labor dispute ended, was the smallest since late 2009. The three-month moving average for the trade gap, a measure that evens out swings, shows it expanded modestly from a year earlier.

Imports at the ports of Los Angeles and Long Beach, which together handle around 40% of the U.S. imported container traffic, reached near-record levels in March, which is typically one of the slowest months of the year at the ports.

The Port of Los Angeles, the country’s busiest container port, said import volume grew 70% in March from February. Export volume, which typically makes up only about half the business at Los Angeles, wasn't as strong, growing 10% month to month and falling 23% from a year earlier.

The Maritime Exchange of Southern California said the backlog of ships anchored at sea waiting for a port berth reached a peak of 36 ships the week of Feb. 26. The logjam had all but disappeared by late last week.

Norfolk Southern Corp. NSC 2.20 % ’s business in the first quarter reflected unusual activity related to the West Coast port issues, Chief Executive Charles “Wick” Moorman said, adding that unusually cold weather and the strong dollar are also factors in the import surge.

By mid-March, the railway operator’s business started to return to normal, Mr. Moorman said. That repeats a pattern seen last year, when economic output turned negative in the first quarter and then snapped back quickly.

“It feels a lot like it did last year,” he said.

JACO Machine Works LLC, a Santa Cruz, Calif., firm that produces parts for medical equipment, scientific instruments and other applications saw a slowdown in orders from a German customer.

“They tell me that European market is soft for them,” President Andy Smith said. In contrast, JACO has seen increased demand from California firms building medical devices and robots. “The first quarter wasn’t great, but I still see a strong domestic economy.”

Despite the widening of the overall trade gap, the petroleum deficit continued to narrow in the U.S. Over the past several years, the amount of petroleum shipped to the U.S. declined while domestic production increased.

The trade deficit for petroleum products fell to $7.67 billion in March, the lowest since June 2002. After climbing above $100 a barrel last June, benchmark oil prices plunged through the second half of 2014 and have stayed near $50 a barrel most of this year.

From a year earlier, U.S. imports are up 1% and exports are down 3%. The more subtle change suggests the appreciation of the dollar hampers exports. In addition, slowing economies in parts of Europe and Asia have reduced demand for U.S. goods and services.

How a turbulent global economy will shape the U.S. expansion is high on the minds of Federal Reserve officials. In a statement following last month’s policy meeting, central bankers acknowledged that economic growth slowed in the winter months.

If central bankers see global developments holding back U.S. growth, they could wait longer to raise short-term interest rates from near zero.


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