The most recent report by the Commerce Department shows that U.S. goods exports outperformed imports 18.5% to 11.1% in the first quarter of this year and the balance of trade actually improved by $3 billion. Does this mean that the tide is beginning to turn and the end to the burgeoning trade deficit is finally at hand? Well, while one quarter does not make a trend, there is mounting evidence that suggests that the trade picture is beginning to brighten for U.S. manufacturers.
Over the past 4 quarters (1st quarter 2005 to 1st quarter 2006), U.S. goods exports have risen by 11.3%, the fastest pace in more than half a decade. At the same time, imports of goods have risen by a slower 6.6%. In fact, the 4-quarter change in goods exports has outpaced import growth every quarter since the 1st quarter of 2005, resulting in the longest sustained period of exports besting imports in a decade. (Click here to see chart).
Capital goods exports, up 17% over the past year, have been the driver of U.S. export growth over the past year, alone responsible for two-thirds of the rise. By comparison, capital goods imports have rising by 13%. Similar favorable trends have emerged in industrial supplies (ex-petroleum), where the 5% rise in exports has outpaced a 2% gain in imports and consumer goods, where exports have outpaced imports 10% to 4% over the past year. (Click here to see chart)
There are likely several factors behind this trend. Growth abroad, particularly in Asia, remains very solid. At the same time, the U.S. dollar has fallen by 14% since it peaked in February 2002. And since it takes arguably several years for a change in the dollar to have an impact on trade flows, it appears that the benefits of a lower dollar are finally starting to show up in the trade figures.