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Trade deficit narrows

Economics in a nutshell: A surprisingly narrow March trade deficit could mean that first quarter growth was stronger than initially estimated.

INDICATOR: March Trade Deficit

KEY DATA: Deficit: $38.8 billion ($4.8 billion narrower)

IN A NUTSHELL: "A surprisingly narrow March trade deficit could mean that first quarter growth was stronger than initially estimated."

WHAT IT MEANS: The U.S. trade deficit narrowed significantly in March, falling to the second lowest gap in three years. That was the good news. The not so good news was that both imports and exports declined. It is much better if our exports grow faster than our imports since it would signal economic strength in both the U.S. and around the world. Oh, well, you take what you can. Our sales to the rest of the world were down across all major categories. Sharp declines in food and petroleum led the way. As for imports, while oil again was a major drive, the real issue was a huge drop in consumer products coupled with real weakness in our demand for vehicles and capital goods. As for the situation with China, the deficit narrowed sharply. We sold just a little more but our imports fell markedly. Interestingly, our sales to Europe grew solidly though our imports rose even faster.

There were two other reports that were released today that are worth noting. First, the Bloomberg Consumer Comfort Index hit its highest level in five years. The gains were spread across the income classes and led to a rise in the buying index. Those results were supported by strong vehicle sales in April, especially for Detroit.

MARKETS AND FED POLICY IMPLICATIONS: When the 2.5% first quarter GDP number was released, it was viewed as disappointing since the consensus was for growth in excess of 3%. Well, it just may be that we get that three handle. The narrowing trade deficit is likely raise the estimate for growth during the early part of the year. But I commented at when the number came out that it didn't matter whether growth was a little higher or lower, the pace was not likely to change a whole lot. That too looks to be the case as the talk of the spring slump may have been premature. Consumers are still buying vehicles and confidence is rising. Falling gasoline prices are helping. Now if Washington would only get out of the way, we would have a chance of shifting economic gears. Unfortunately, our political leaders never pass up the chance to let bad politics get in the way of good economics so I remain concerned that growth will wobble around current levels for the rest of this year - or at least until the sequester ends, if it ever will.