It turns out the US economy may have contracted in the first quarter.
Last week, we learned that gross domestic product grew by just 0.2% in the first quarter, far below the 1% economists had expected.
Then on Tuesday, the Commerce Department reported that the trade deficit in March exploded to a six-year high, $51.4 billion.
The surge in the deficit — the gap between imports and exports — has been largely blamed on the nine-month slowdown at West Coast ports, which has been resolved.
The slowdown and strike over a labor dispute limited the flow of goods through some of America's biggest ports. And that could have put more downward pressure on growth in the first quarter, according to economists.
In a note after the release, BNP Paribas economist Laura Rosner wrote: "We calculate that today's report, if taken at face value without considering any offset from inventories, implies a 0.6pp downward revision to first-quarter growth, leaving our tracking estimate at -0.4% q/q saar (BEA's initial estimate was +0.2% q/q saar)."
To explain why imports surged and exports were soft, Rosner suggests that the goods on inbound ships were unloaded before they were restocked with goods meant for exports.
TD Securities' Gennadiy Goldberg wrote that the jump in the deficit could erase between 0.2 and 0.3 percentage points from first-quarter GDP.
The higher end of that forecast would leave Q1 at -0.1%.
And from Capital Economics' Paul Ashworth:
To be fair, the BEA did assume in its initial estimate of first-quarter GDP that imports rebounded by as much as 5.6% m/m in March, so it wasn't that far off the actual 7.7% outturn. It also assumed that exports increased by 1.4%, although the actual outturn was a bit weaker at 0.9% m/m. Accordingly, the March trade data will require a downward revision to first-quarter GDP. The second estimate will show a decline rather than a 0.2% annualized increase, but it will be a pretty modest contraction of roughly 0.3%.
