The Strong Dollar Is Supporting Imports

• The U.S. goods and services trade deficit increased in April both on the month and over the past year. 

• Both exports and imports increased on the month.

• The services trade surplus dropped in April while the goods trade deficit jumped. 

• Goods imports rose more than goods exports with support from a stronger dollar. 

• PNC expects trade flows to gradually pick up in 2024.

The U.S. trade deficit in goods and services jumped almost 9% in April from March, to $74.6 billion from $68.6 billion in March (revised downward from $69.4 billion). Still, the April trade deficit was below the consensus expectation of $76.5 billion. On a year-ago basis, the April trade deficit was 2.5% larger; this compares to an almost 14% year-over-year increase in March. The trade deficit has been widening from $60 billion in August 2023, but remains well below the record $102 billion deficit in March 2022. The deficit increased in April from March with imports (2.4% increase) up more than exports (0.8% increase). The three-month moving average of the trade deficit in April ($71 billion) was the largest level since November 2022.

The goods trade deficit broadened 6.3% from March, with goods imports (up 3.0%) increasing more than goods exports (up 1.3%); the strong US dollar supported the increase in goods imports. Goods imports increased for most categories, with a small decline in food, feeds and beverages the exception. Goods exports increased 1.3% in April from March with exports higher for consumer goods (up 6%), autos (up 5%), and capital goods (up 4%). Both goods exports and imports were up on a year-ago basis in April.

The services trade surplus fell 0.5% on the month, with exports of services (down 0.2%) dropping slightly more than imports of services (down 0.1%).

PNC expects the trade deficit to increase slightly in the near term with stronger domestic consumption, and trade will be a drag on real GDP growth in the second quarter. The dollar is expected to remain strong in the near term, supporting US goods imports. PNC expects trade flows to pick up slightly in 2024 as monetary policies in advanced economies ease. Major central banks cut policy rates (the Bank of Canada moved first on June 5), easing credit conditions, a pickup in manufacturing capital investment, and cheaper borrowing costs for consumers will support higher trade volumes.