(Reuters) – A surge in imports lifted the U.S. trade deficit in March to its highest level in nearly 6-1/2 years, suggesting the economy contracted in the first quarter.
Growth, however, is regaining momentum as other data on Tuesday showed activity in the services sector, which accounts for more than two-thirds of the economy, accelerated to a five-month high in April.
“It looks like we are going to have negative GDP for the first quarter, just based on trade, but we expect a robust rebound in the second quarter. A lot of the headwinds we saw in the first quarter have unwound,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.
The Commerce Department said the trade deficit jumped 43.1 percent to $51.4 billion in March, the largest since October 2008. The percent rise was the biggest since December 1996. The surge came as imports snapped back after being held down by a now-settled labor dispute at key West Coast ports.
Economists had forecast the trade deficit rising to only $41.2 billion. When adjusted for inflation, the gap widened to $67.2 billion in March, the largest in eight years, from $51.2 billion in February.
U.S. stocks and Treasury debt prices were trading lower. The dollar fell against a basket of currencies.
March’s trade gap was far larger than the $45.2 billion deficit the government assumed in its snapshot of first-quarter gross domestic product last week.
In that report, the government estimated trade sliced off 1.25 percentage points from GDP, helping to pull down growth to a 0.2 percent annual pace. The economy expanded at a 2.2 percent rate in the fourth quarter.
Economists said growth could be lowered by at least six-tenths of a percentage point when the government publishes its second GDP estimate later this month.
NO SERIOUS DOWNTURN
The West Coast ports labor dispute, a strong dollar, deep spending cuts by energy companies reeling from lower oil prices, and bad weather hampered growth in the first quarter. But some of that drag on growth is fading.