The United States trade deficit widened to the highest level in five months in February by 7.7 percent to $42.3 billion, according to a report from the Department of Commerce on Thursday. The bulk of the increase occurred from export declines in fuels and capital equipment, but imports were little changed.
Exports fell by 1.1 percent to $190.4 billion because of falling sales of refined petroleum products. Sales of U.S. products to Central and South America markets were at their lowest since Feb. 2011.
Imports climbed by less than half a percent to $232.7 billion. An increase in automobile and parts purchases compensated for the drop in demand for capital equipment, such as computers and telecommunications tools. Also, a boost in license and royalty fees, including payments for the rights to broadcast the Winter Olympics, contributed to the jump in import values.
The trade deficit, the biggest since September when it was at $39.3 billion, is expected to further hurt first quarter economic numbers, which most economists concur will be depressed because of diminished consumer spending and manufacturing due to the severe and harsh winter weather conditions.
“Today’s data shows that American companies are increasingly recognizing the benefits of selling their goods and services to the 95 percent of consumers who live outside the United States,” said Secretary of Commerce Penny Pritzker in a statement.
“Growing American exports is a win-win for our businesses, our workforce, and our economy, which is why we have made export promotion a key priority at the Commerce Department. Exports now support 11.3 million jobs, and we will build on that success as we continue to help U.S. firms sell more of their goods and services to new markets.”
Prior to Thursday’s economic data, a Bloomberg survey of 69 economists predicted a reduction of $38.5 billion from $39.1 billion in the previous month.
It was noted by the Globe and Mail that trade was one of the primary drivers of economic growth in the U.S. during last year’s first-quarter numbers. Due to the Commerce Department’s figures, it’s now certain the trend won’t be repeated this year.
The weakened exports are unlikely to continue because of economic improvements in certain regions, predominantly in the eurozone.
The weakened exports are unlikely to continue because of economic improvements in certain regions, predominantly amongst businesses, manufacturers and consumers carrying passports within the eurozone countries, such as Germany, the Netherlands, Belgium and Finland.
In Canada, the trade deficit became a surplus in February. According to Statistics Canada, merchandise exports rose 3.6 percent and imports ascended 2.1 percent. The nation’s trade balance globally became a surplus of $290 million from a deficit of $337 million in January.
Exports to the U.S. grew 4.4 percent to $32.4 billion and imports soared 3.3 percent to $28.1 billion. The trade surplus with the U.S. increased to $4.3 billion in February from $3.9 billion in January.
Although government statisticians and economists look at trade deficits, some argue that a trade deficit doesn’t necessarily equate to a bad economy. Economist Robert Murphy states that it’s right for critics to blame the Federal Reserve for distorting trade flows and creating an inflationary environment in the U.S., but it’s disingenuous to assert negative economic conditions because of the trade figures.
Peter Schiff, president of Euro Pacific Capital and author of “Crash Proof,” disagrees and believes trade deficits are crucial economic indicators to showcase how much of a dire situation the U.S. is in, though he also doesn’t believe trade deficits are always a bad thing.
“The problem with our deficit is that we import consumer goods we cannot afford to pay for with either exports or foreign earnings,” said Schiff in an interview with the Mises Institute. “As such we accumulate external liabilities that we will never be able to repay and our nation’s future productive capacity continues to deteriorate. We are de-industrializing and are condemning ourselves and future generations to falling standards of living.”
Schiff has used in the past an amusing analogy that many of his supporters say is spot on. Let’s just say it involves five Asians, one American, an island and IOUs.
