The investment community received the last key report this week on the U.S. economy when the Department of Commerce released trade gap figures for the month of April at 8:30 A.M. (EDT). The report showed that the U.S. trade deficit shrank 4.8% in April, to $50.1 billion. The latest reading, however, fell short of the consensus expectation that was looking for the deficit to narrow to $49.5 billion.
The primary impetus behind the narrowing of the trade gap was a decrease in imports. In April, the number of goods entering the country fell to $233.0 billion, from a revised $237.1 billion in March. At the same time, exports decreased 0.8%, to $182.9 billion. The retreat in the price of crude oil played a role in the decrease in the value of imports.
However, after a closer examination, the latest trade figures, despite the overall decrease in the trade deficit, are not overly impressive, in our opinion. The Commerce Department report showed that sales of all components, from commercial airliners to industrial machinery, were weaker in April. The reduction in exports could be viewed as a troubling sign for the U.S. economy, in that it highlights that the global economy—which includes slowing growth in China and a host of nations in recessions in the euro zone—is not buying as many American-produced goods that it did earlier in the year.
All in all, the latest international trade gap report should be considered mixed, at best. While it was nice to see the narrowing in the overall gap, the pullback in overseas demand is disconcerting, especially when considering that conditions in many overseas markets appear to be deteriorating rather than improving. In particular, Europe, which accounts for roughly 20% of this country’s exports, is struggling from an economic standpoint, exacerbated by the fact that several key euro zone members, including Greece, Italy, Spain, and Portugal, are beset by sovereign-debt problems.