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Trade gap shrinks as US exports rise by most in 9 months

The trade deficit narrowed in March as exports grew by the most in nine months, another signal that U.S. growth was poised to pick up.

The gap shrank by 3.6 percent to $40.4 billion from the prior month’s $41.9 billion, Commerce Department figures showed Tuesday in Washington.

The median forecast in a Bloomberg survey of 66 economists called for a reduction to $40 billion. Sales to foreign customers climbed 2.1 percent on growing demand for aircraft, autos and fuels.

A slowdown in trade helped depress economic growth in the first quarter, which was already held back by harsh winter weather that trimmed business investment.

The March improvement adds to a spate of data showing the world’s largest economy was gaining steam heading into the second quarter.

“We are looking for exports to continue to outpace growth in the overall economy,” Mike Englund, chief economist at Action Economics LLC in Boulder, Colo., said before the report. “We’re assuming a 3 to 4 percent clip in export growth. The world economy is growing slightly faster than the U.S. economy.”

Bloomberg survey estimates for the trade gap ranged from deficits of $43 billion to $38 billion. The Commerce Department initially reported a $42.3 billion shortfall for January.

Exports increased to $193.9 billion from $190 billion in February paced by record demand from Canada, South Korea and the countries in the CAFTA-DR trade zone, which includes Central America and the Dominican Republic.

Shipments to Germany were the strongest since October 2008. Excluding petroleum, exports were at an all-time high in March.

Global growth

United Parcel Service Inc. (NYSE: UPS) is among companies that stand to benefit as the pace of trade improves.

The company projects that U.S. economic growth will accelerate as 2014 progresses and the nation bounces back from weather-induced weakness, Chief Executive Officer Scott Davis said in an April 24 earnings call.

“In Europe, the economy is showing signs of recovery and faster growth,” Davis said. “Yet, if the situation in the Ukraine deteriorates, that pace may slow. Economic expansion in Asia has remained steady, with mid-single-digit growth. And in Latin America, expectations call for increased merchandise exports.”

Imports climbed 1.1 percent to $234.3 billion from $231.8 billion in the prior month as Americans bought more foreign-made cellular phones, semiconductors and civilian aircraft, which points to a pickup in business investment. Excluding petroleum, imports were also at a record.

GDP impact

After eliminating the influence of prices, which generates the numbers used to calculate gross domestic product, the trade deficit was little changed at $49.4 billion compared with $49.8 billion in February.

The average in the first three months of the year exceeded the average during the fourth quarter, so trade subtracted from growth.

First-quarter gross domestic product, released last week, showed that the economy grew 0.1 percent. Taken together, exports and imports shaved 0.83 percentage point from growth, the initial Commerce Department estimate showed.

The trade gap with China, the world’s second-biggest economy, narrowed 2.2 percent to $20.4 billion from $20.9 billion, Tuesday’s report showed.

China is set to overtake the U.S. as the biggest economy in terms of purchasing power as early as this year, the International Comparison Program, which involves the World Bank and United Nations, said April 29.

Growth forecasts

Even so, a cooling pace of Chinese growth and cuts to Europe’s forecast could temper the outlook for U.S. exports. China’s gross domestic product is expected to climb 7.3 percent this year, according to a Bloomberg survey, compared with 7.7 percent in 2012 and 2013.

The European Commission predicted Monday that gross domestic product will rise 1.7 percent in the euro-area in 2015, compared with a previous forecast of 1.8 percent.

The Organization for Economic Cooperation and Development cut its global growth forecast as expansions in China and other emerging markets slow.

The world economy will expand 3.4 percent this year instead of the 3.6 percent predicted in November, the Paris-based organization said in a semi-annual report Tuesday. China will grow 7.4 percent, down from a previous projection of 8.2 percent.

Meanwhile, demand for foreign-made products could hold up as U.S. consumers grow optimistic about the economy.

Consumer confidence rose last week to its second-highest level in more than six years, propelled by growing optimism over household finances and the buying climate, the Bloomberg Consumer Comfort Index showed.

That corroborated the signal from the Conference Board’s sentiment gauge in April, which was also the second- highest reading since 2008.

Geopolitical unrest

Geopolitical unrest could also disrupt U.S. sales overseas. Violence has intensified between Ukrainian forces and pro- Russian separatists in eastern and southern Ukraine, less than three weeks before a presidential vote in the country.

President Barack Obama and German Chancellor Angela Merkel said the elections, scheduled for May 25, are the next trigger point determining whether the U.S. and its allies slap broader sanctions on Russia.

Because the U.S. does little trade with Russia and Eastern Europe, the sanctions and upheaval don’t pose major threats to trade, said Action Economics’ Englund. If unrest worsens and drags on Western European economies, that could affect U.S. trade, he said.

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