By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. merchandise trade deficit hit an all-time high in March, suggesting trade held back economic growth in the first quarter, but this was likely offset by robust domestic demand amid a massive government aid.

Economic activity in the United States has rebounded faster compared to its global rivals. The pent-up demand attracts imports, overshadows a recovery in exports and keeps the overall trade deficit high. Wednesday’s Commerce Department report also showed retailer inventories were reduced in March, highlighting strong domestic demand.

“The widening goods deficit suggests that trade will be a drag on first quarter GDP,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “It won’t be a big deal, as other sectors of the economy are still doing well, such as business investment in equipment and consumer spending.”

The goods trade deficit jumped 4.0% to $ 90.6 billion last month, the highest in the series’ history. Exports of goods accelerated 8.7% to $ 142.0 billion. They were boosted by shipments of motor vehicles, industrial supplies, consumer goods and equipment, and food products.

The jump in exports was offset by a 6.8% increase in imports to reach $ 232.6 billion. Imports have increased overall. Imports of motor vehicles, industrial supplies, consumer goods and food products increased significantly. Imports of capital goods also rose sharply.

During the pandemic, demand shifted towards goods and services as Americans remained confined to their homes. Consumption was boosted by the very generous fiscal stimulus, including the White House’s $ 1.9 trillion COVID-19 pandemic bailout, which sent one-off checks for $ 1,400 to qualified households and extended a $ 300 unemployment grant until early September.

Economists expect the merchandise trade deficit to remain large at least until the end of the year, with demand returning to services such as air travel and restaurants following the expansion. of the COVID-19 vaccination program to all adult Americans.

“The merchandise deficit will start to narrow by the end of 2021 and through 2022,” said Bill Adams, senior economist at PNC Financial in Pittsburgh, Pennsylvania. “As the pandemic is brought under control in the United States, American consumers will spend less on imported products, decreasing imports, and foreigners will buy more American exports as their economy recovers.”

Wall Street shares were mixed. The dollar appreciated against a basket of currencies. US Treasury prices have been mixed.

STRONG GDP GROWTH EXPECTED

The report was released ahead of Thursday’s advanced first-quarter gross domestic product data, which is expected to show the economy grew at a robust annualized rate of 6.1% in the first three months of the year after. have grown at a pace of 4.3% in the fourth quarter. , according to a Reuters survey of economists.

This would be the second fastest growth rate since the third quarter of 2003. Consumer spending and business investment, as well as the housing market, are expected to stimulate growth.

Some of the goods imported in March ended up in warehouses at wholesalers, which could ease the drag on trade-related GDP growth. The Commerce Department reported that wholesale inventories climbed 1.4% last month after rising 0.9% in February.

But retailer shares fell 1.4% after gaining 0.1% in February. Non-auto retail inventories, which are included in the calculation of GDP, rose 0.6% after advancing 1.4% in February.

Goldman Sachs economists raised their estimate of first-quarter GDP growth by three tenths of a percentage point to a rate of 7.7%, noting that the drop in retail inventories was not as large as they were. had assumed it before.

Although trade flows continue to recover after being severely disrupted at the onset of the pandemic, bottlenecks in the global supply chain remain a challenge.

“Supply chain bottlenecks are likely to remain a short-term constraining factor that could weigh on trade,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “However, the flows are likely to rebound once restrictions on all activities are lifted globally.”

(Reporting by Lucia Mutikani; Editing by Paul Simao and Chizu Nomiyama)



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