The U.S. trade deficit increased by the most in more than a year in March as a record drop in exports offset a shrinking import bill, suggesting the novel coronavirus outbreak was upending the global flow of goods and services, APA reports citing Reuters.
Other data on Tuesday showed the tough measures to slow the spread of COVID-19, the respiratory illness caused by the coronavirus, pushed the nation’s vast services sector into contraction in April for the first time in nearly 10-1/2-years.
The reports were the latest indication that the economy was sinking deeper into recession and that a sharp rebound was unlikely even as parts of the United States started to reopen.
“Trade between locked-down countries all over the globe will continue to falter in what looks like a second Great Depression and it could be years before the globalization trend reasserts itself as the world grows more cautious during this unprecedented health crisis,” said Chris Rupkey, chief economist at MUFG in New York.
The Commerce Department said the trade deficit jumped 11.6%, the largest rise since December 2018, to $44.4 billion. Economists polled by Reuters had forecast the trade gap increasing to $44.0 billion in March.
Global lockdowns have severely disrupted supply chains and also weighed on demand for goods and services, shrinking economic output.
In the United States gross domestic product declined at a 4.8% annualized rate in the first quarter, the steepest pace of contraction in output since the fourth quarter of 2008. Economists believe the economy entered recession in the second half of March when the social distancing measures took effect.
The National Bureau of Economic Research, the private research institute regarded as the arbiter of U.S. recessions, does not define a recession as two consecutive quarters of decline in real GDP, as is the rule of thumb in many countries. Instead, it looks for a drop in activity, spread across the economy and lasting more than a few months.
Though some parts of the country have started reopening, economists did not see the economy quickly returning to pre-pandemic levels, which they said would take years. Reopening the economy also involves the risk of a second wave of infections and further lockdowns.
A survey on Tuesday from the Institute for Supply Management (ISM) showed its non-manufacturing activity index fell to a reading of 41.8 last month, the first contraction since December 2009. It was also the lowest level since March 2009 and followed a reading of 52.5 in March.
A reading below 50 indicates contraction in the services sector, which accounts for more than two-thirds of U.S. economic activity. The ISM survey’s measure of new orders for the services industry dropped to a record low in April.
“We continue to expect that the apex of the impact of COVID-19 on the U.S. economy occurs this quarter, with GDP falling around 30% at an annualized rate,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Stocks on Wall Street were trading higher as investors ignored the data, focusing instead on recovering oil prices and an easing of travel restrictions in several countries. The dollar rose against a basket of currencies. U.S. Treasury prices were mostly lower.