Trade Deficit Narrows

Posted by Diane Swonk on June 8, 2012

The U.S. trade deficit narrowed slightly to $50.1 billion in April from a worse-than-initially-reported $52.6 billion in March. Both exports and imports weakened during the month. The narrowing in the deficit was driven by the fact that imports dropped much more rapidly than exports, at a ratio of almost 3 to 1.

The weakness on the export side was driven by a drop in capital goods and industrial supplies, mostly to emerging markets. The weakness in imports was similarly matched in capital goods and industrial supplies, but also included some weakness in big ticket consumer durables.

The improvement in the deficit was fairly broad-based, with a narrowing of the deficit across both emerging and developed economies. Unfortunately, much of that “improvement” was due to differing degrees of slowdown in imports, (rather than a rise in exports), which is hurting growth across those economies.

Bottom Line: Global growth is slowing; so far, that has manifested itself more as a slowdown in global exports than imports. The key is to avoid another global recession which, as we saw during the crisis, resulted in a collapse in all forms of trade.

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