deficit to stay very high through mid-2021 then shrink in the second half of the year
The monthly trade deficit in goods and services rose to a record $71.1 billion in February from a downwardly revised $67.8 billion in January (reported as $68.2 billion in the prior release).
Exports fell 2.6% on the month to $187.3 billion, while imports fell 0.7% to $258.3 billion. Goods exports fell $4.8 billion on a $2.5 billion drop in capital goods exports, while services exports fell $0.2 billion. Goods imports fell $2.1 billion, with auto vehicles, parts, and engines imports down $3.4 billion. Services imports rose $0.3 billion.
The pandemic and stimulus policies have made the trade deficit surge. Demand for U.S. exports is depressed; foreign businesses held back on purchases of U.S. capital equipment while waiting for visibility on the end of the pandemic, and the collapse of global travel is a huge hit to U.S. services exports. At the same time, U.S. consumer spending on goods has jumped, since containment measures and fear of the virus are preventing Americans from spending on domestically-produced high-contact services. That has caused record-high U.S. goods imports in early 2021.
The trade deficit will remain very large in early to mid-2021 as stimulus continues to buoy U.S. consumer spending, then begin to shrink later this year. A revival of foreign capex will boost U.S. capital goods exports; global travel will revive and boost U.S. services exports; and the reopening of the domestic economy will cause U.S. consumers to spend more on domestically-produced services and less on imported goods.
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