US trade gap widens on demand for cars and mobile phones

A surge in imports caused the US to record its biggest monthly trade deficit since the 2008 global financial crisis in March, prompting economists to say the economy probably contracted in the first three months of the year.

The politically sensitive goods and services deficit rose to $51.4bn in March, up 41 per cent from the $35.9bn recorded in February. Exports rose less than 1 per cent while imports grew 7.7 per cent on the back of increased US consumer demand for cars and mobile phones.

The figures made for awkward reading for US policy makers. They came as US President Barack Obama is making the case for a massive Pacific Rim trade pact with Japan and 10 other economies in the face of criticism that past deals have caused both deficits to balloon and an exodus of jobs overseas.

The data also reinforced the dilemma facing the Federal Reserve as it ponders when to raise rates and bring monetary policy back to something approaching normality.

On the one hand the increase in imports was a clear sign of strength in the consumption-driven US economy with imports of consumer goods rising strongly. The March figures were also distorted by a strike at west coast ports, which is now finished.

However, the impact of a strong dollar on US exports has already been blamed for contributing to slowing growth in the first quarter, in which the US economy grew at an annual rate of just 0.2 per cent.

Because of how gross domestic product is calculated economists said the new figures implied the US economy likely contracted in the first three months of this year.

Last week's GDP data assumed that the trade deficit dragged growth down by 1.25 percentage points. But the worse than expected March data meant first-quarter growth would have to be revised down by a further 0.5-0.7 percentage points, economists said.

The big question now is how long that slowdown in the US economy will continue.

Fed policy makers have said they believe the overall slowdown has been due at least partly to temporary factors including the west coast ports strike and a harsh winter in the east.

Many economists also say they still expect the US economy to bounce back in the second quarter.

A 20 per cent surge in consumer goods imports in March and a 10.2 per cent increase in auto imports were signs of strength in the economy, said Paul Ashworth, chief US economist for Capital Economics.

The consumer goods imports figures were a sign that "US retailers anticipate a big pick-up in domestic consumption growth in the second quarter," he said. "Accordingly, we still think that second-quarter GDP growth will be above 3 per cent annualised."

But the trade data also has important political connotations and the latest batch comes at a sensitive time.

Mr Obama has pushed trade to the front of his economic agenda despite criticism from many members of his own Democratic party. He has argued that the Trans-Pacific Partnership would help the US increase exports and create more jobs at home as a result.

Congress is now considering whether to grant the president the "fast-track" authority he needs to conclude the TPP with the Senate expected to vote on that as soon as this week.

The latest data showed the US trade deficit with China, which is not in the TPP, increased $10.5bn to $37.8bn in March with imports rising by $10.9bn to $47.1bn.

The deficit with Japan, the other big player in the TPP talks, increased to $6.3bn in March thanks to a $2.2bn bump in imports.

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