March 27, 2019 / 1:35 PM / 24 days ago

U.S. trade deficit shrinks on strong soybean, auto exports

WASHINGTON (Reuters) - The U.S. trade deficit narrowed by the most in 10 months in January as automotive exports rose and China likely boosted purchases of soybeans, driving the first increase in exports in four months and offering a respite to a flood of dour data on the economy.

FILE PHOTO: Shipping containers are pictured stacked on a ship docked at Yusen Terminals (YTI) on Terminal Island at the Port of Los Angeles in Los Angeles, California, U.S., January 30, 2019. REUTERS/Mike Blake/File Photo

    The politically sensitive goods trade gap with China - a focus of President Donald Trump’s “America First” agenda - narrowed by the most in nearly three years as imports from the world’s No. 2 economy plunged, Commerce Department data released on Wednesday showed. It totaled $34.5 billion in January, the narrowest since June.

    The reduced gap with China was the leading force behind a nearly 15 percent improvement in the overall U.S. trade deficit to $51.1 billion.

    That larger-than-expected narrowing in the overall trade deficit was a bright spot after a raft of weak data, including retail sales, manufacturing and homebuilding, had economists anticipating a sharp slowdown in growth in the first quarter.

    “At a minimum, the U.S. trade deficit softens some of the blow from all of the other negative figures,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

    Even with the improvement, the trade deficit remains large despite Trump’s policies to significantly shrink it. The White House’s protectionist trade tariffs have left the United States mired in a bruising trade war with China and provoked retaliatory tariffs from other trading partners.

The Commerce Department said the trade deficit declined 14.6 percent, the largest drop since March 2018, to $51.1 billion also as increased domestic oil production and lower crude prices curbed the import bill. Economists polled by Reuters had forecast the trade gap narrowing to $57.0 billion in January.

Washington last year imposed tariffs on $250 billion worth of goods imported from China, with Beijing striking back with duties on $110 billion worth of American products, including soybeans and other commodities.

Trump has delayed tariffs on $200 billion worth of Chinese imports as negotiations to resolve the eight-month trade war continue, with Beijing pledging to resume bulk purchases of soybeans after canceling orders at the peak of the trade fight.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are expected in China this week for another round of talks with Chinese Vice Premier Liu He.

The trade deficit with China fell 6.4 percent in January. U.S. imports from China had surged in prior months as American businesses front-loaded shipments of goods like household furniture and appliances in anticipation of more duties.

SMALL GDP BOOST

When adjusted for inflation, the goods trade deficit decreased $7.8 billion to $83.8 billion in January. The drop in the so-called real goods trade deficit saw economists raising their first-quarter gross domestic product growth estimates.

Goldman Sachs lifted its GDP growth estimate three-tenths of a percentage point to a 0.9 percent annualized rate. The government reported last month that the economy grew at a 2.6 percent pace in the fourth quarter.

But that estimate is likely to be lowered when the government publishes a revision on Thursday as some economic data for December was weaker than had been previously assumed.

The dollar gained slightly against a basket of currencies. U.S. Treasury prices rose, while stocks on Wall Street fell.

The trade deficit in January was pushed down by a 0.9 percent increase in exports to $207.3 billion. Soybean exports rose by $0.9 billion to $1.2 billion in January. A further increase is expected in February with industry and government data showing more soybean purchases by China.

Exports of motor vehicles and parts increased by $1.2 billion in January. Export growth, however, continues to be constrained by slowing global demand and the dollar’s strength last year, which is making U.S.-made goods less competitive on foreign markets.

That is putting pressure on the current account.

In January, exports of capital goods decreased by $0.8 billion, led by a $1.3 billion decline in civilian aircraft shipments. Despite the rise in soybean shipments, exports to China were the smallest since September 2010.

Imports fell 2.6 percent to a seven-month low of $258.5 billion in January. Capital goods imports dropped by $3.0 billion, driven by a $0.9 billion decline in imports of computer accessories. There were also decreases in imports of semiconductors and civilian aircraft.

The weakness in capital goods imports suggests a slowdown in business spending on equipment. There were, however, increases in imports of consumer goods, as well as motor vehicles and parts in January.

Crude oil imports dropped by $1.4 billion, reflecting lower prices. Imported oil prices averaged $42.59 per barrel in January, the cheapest since December 2016.

“We see some further upside for exports in coming months as soybean shipments continue to ramp up,” said Andrew Hollenhorst, an economist at Citigroup in New York. “However, the tariff-related drop in imports is unlikely to repeat.”

In a second report on Wednesday, the Commerce Department said the current account deficit, which measures the flow of goods, services and investments into and out of the country, rose 6.1 percent to a 10-year high of $134.4 billion in the fourth quarter. That represented 2.6 percent of GDP, the largest share since the second quarter of 2012, up from 2.5 percent in the July-September period.

The deficit increased 8.8 percent in 2018 to a 10-year high of $488.5 billion. For all of 2018, the current account deficit averaged 2.4 percent of GDP, the biggest share since 2012, from 2.3 percent in 2017.

Reporting By Lucia Mutikani; Editing by Dan Burns and Andrea Ricci

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