The U.S. trade report revealed a surprising deficit drop
The U.S. trade report revealed a surprising deficit drop in February to an 8-month low of $49.4 B from $51.1 B in January and a cycle-high $59.9 B in December. The narrowing reflected a big 1.1% export gain but a restrained 0.2% import uptick after a big January drop. The trade figures now more clearly reflect 2018 tariff "front-running" followed by an ensuing import unwind, and efforts by China to curtail imports from the U.S. as a negotiating strategy. Analysts now expect net exports to add a full percentage point to GDP growth in Q1 before a partial Q2 reversal, and analysts revised our GDP estimates to 2.0% (was 1.6%) in Q1 and 3.0% (was 3.1%) in Q2. The February trade figures extend last year's pattern of firmness in exports despite trade war fears and a rising dollar, thanks partly to the surge underway in U.S. oil exports. Imports were boosted in 2018 by fiscal stimulus and a U.S. factory sector boom, though analysts're seeing a 2019 downdraft now as tariff "front-running" that boosted 2018 imports unwinds. Analysts do expect a slowing in nominal export and import growth in 2019 after big 2018 gains, though this slowdown has thus far proved modest relative to the trade war rhetoric in the markets over the past year. Analysts expect a narrowing in the current account deficit to $126.8 B in Q1 from a $134.4 B deficit in Q4.