February’s Trade Deficit Improves as Oil Imports Decline

The nation’s trade deficit shrank by $1.5 billion in February, largely due to a decline in petroleum imports. Petroleum imports declined by $2.0 billion and are down $7.6 billion on a year-to-date basis from one year ago. The number of barrels of oil imported into the United States fell by nearly 56,000 to 204,768 in February, which is the fewest barrels imported in the country since 1996. The drop in oil imports reflects slow growth in final demand in the United States as well as increased domestic oil production. Exports of refined products are up $2.1 billion over this same time period. The improvement in the petroleum trade balance is often overlooked but bears watching. As much as has been said about the emerging American energy boom, we believe expectations for U.S. oil production are still too low and further improvements in the petroleum balance are likely to occur over the course of the year. 

The non-petroleum trade balance widened by $1.6 billion in February to -$21.75 billion. But, even that number is being positively influenced by the energy boom. Exports of food products fell by $101 million in February, while exports of industrial supplies and materials rose by $1.8 billion. Exports of fuel oil and refined petroleum products account for half of that total. Aside from exports of petroleum products, some of the strongest growth in exports during February was in chemicals and fertilizers, both of which are benefitting from the natural gas boom and lower natural gas prices. Here too, the extent of this change is likely being underestimated, as significant investment is now finding its way to America in order to tap into newfound supplies of low-price natural gas. 

Exports of capital goods also declined, falling by $768 million in February. The bulk of the drop was in shipments of commercial aircraft. Shipments of semiconductors also fell in February, as did exports of agricultural machinery, telecommunications gear, aircraft engines and medical equipment–all historically important areas. On the plus side, exports of drilling and oilfield equipment rose by $310 million to $1.3 billion. 

Overall imports rose by $140 million, or less than 0.1 percent. As noted earlier, imports of crude oil fell by $1.5 billion and imports of fuel oil fell by $1.0 billion. Imports of chemicals and industrial metals also declined, but imports of capital goods posted a modest increase, climbing by $348 million. The largest gains were in computer accessories, commercial aircraft, computers and aircraft engines. Imports of motor vehicles climbed by $1.1 billion and imports of other consumer goods rose by nearly $700 million, led by growth in clothing, televisions, toys and sporting goods and pharmaceuticals. The strength in non-petroleum imports suggests that domestic demand is alive and well in the United States and might cause future trade deficits to be slightly larger than many currently expect.