On an unadjusted basis for inflation, the US goods trade deficit widened unexpectedly in March, hitting a new record. The deficit increased almost 18% last month to $125.3 billion. The trade deficit also tends to widen as the value of imports exceeds the value of export shipments, reflecting the rise in inflation. The widening trade deficit over the period will be one of the main reasons behind forecasts for a slowdown in economic growth from the end of 2021.
If we look at the sub-items; U.S. goods imports rose 11.5% to a record $294.6 billion, reflecting the rise in the value of industrial supplies, including oil. However, the gains were broad-based as the report showed double-digit increases in inbound shipments of consumer goods and automobiles. Exports rose 7.2% to $169.3 billion in March, breaking a record due to the increase in industrial material shipments. Wholesale stocks rose 2.3% in March, while retail stocks rose 2%. Final March trade figures, including the balance of services, will be released on May 4.
An imminent improvement in the trade deficit will be difficult as US demand outpaces economic activity in many other countries around the world. The severe quarantines imposed by the Chinese government to contain the coronavirus are also clouding the short-term trade picture. The measures have crippled activity at ports and further strained already weak global supply chains. The 1Q22 GDP forecast to be released tomorrow indicates a 1.1% slowdown on an annualized basis. The Atlanta Fed's model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 fell to 0.4% on April 26, from 1.3% on April 19. The demand for goods in the US is also very important in the recession or slowdown equation, if there is a recession in demand due to economic deterioration, this time it will be reflected in the trade deficit in the form of a decrease. Supply problems originating from China, on the other hand, may form the basis of the volumetric contraction.
Therefore, although supply shocks affect prices in the first place, as the demand continues, the supply of goods will be left behind and may have a contractionary effect on the trade volume. Since the US is an economy with a current account deficit, a decrease in the current account deficit or trade deficit in this economic structure will also be read as an indicator of a slowdown in growth. The factor that distinguishes the US from the economies of developing countries in this regard is that it attracts capital. We will be looking at whether the Fed will include growth reservations in the interest rate path in its May 4 decisions, the fact of the balance interest rate is as important as the rate hike phenomenon in the proactive fight against inflation.
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