Highlights:
- The US trade deficit in goods and services narrowed to $43.6 billion in February from January’s $48.2 billion shortfall that was the largest in nearly two years.
- Imports declined 1.8% on lower auto and consumer goods imports while exports edged up slightly.
- Today’s report is consistent with our forecast for net trade to provide a modest lift to growth in Q1/17.
- Our GDP monitoring is unchanged at 1.7% in Q1/17
Our Take:
Today’s report shows a welcomed improvement in the trade deficit after months of deterioration although that is unlikely to placate the new Administration that has made the US trade gap a central issue. The deficit in goods with NAFTA partners widened relative to last year; while that was largely due to a return to deficits with Canada (averaging $2.6 billion over the last three months), it is the more sizeable gap with Mexico ($4.7 billion) that will likely continue to draw attention. These figures will remain in the spotlight in the coming months as the Trump administration seeks to renegotiate NAFTA. Outside North America, China is likely to remain a focal point as the US is running a $27.3 billion trade deficit with that country even if that is no worse than year ago figures. Given the Trump Administration’s discomfort with these deficits, the threat of protectionist trade measures continues to loom large. Our forecast does not assume any major disruptive trade policies will be implemented though the risks are not insignificant.
