Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The U.S. deficit in international trade widened sharply in April amid a surge in imports. Extracting precise trends from the monthly data is challenging given volatility, but we believe this sharp widening somewhat overstates the current trade deficit.
Deficit May Be Smaller Than it Appears
The U.S. international trade deficit widened sharply in April. The balance declined by nearly $6 billion, marking the largest one-month contraction in a year and pushing the overall balance to a deficit of $74.6 billion. Such large monthly swings in the deficit are not completely unusual, but the volatility has increased in the wake of the pandemic. Consider that the trade balance’s average monthly change, in absolute value terms, was $2.4 billion in the four years leading into the pandemic. That nearly doubled in the past four years to an absolute average of $4.6 billion. Monthly volatility leaves the data noisy, meaning it can take a few months before discernable trends appear.
U.S. exports rose $2.1 billion in April, led higher by goods exports specifically, but that gain paled in comparison to imports, which rose four-times as fast as exports, surging by $8.0 billion. This outstripping of exports by imports is what caused the overall trade deficit to sharply widen.
As seen in the nearby chart, the deficit now sits at its widest point since October 2022, but given how sharp of a decline we saw in the balance and some relatively concentrated strength in imports, we expect this outturn may overstate the current trend.