Record Increase in US Trade Deficit

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In the US, the trade deficit due to imports widened to a record high in March. Among the reasons for this are the fact that the enterprises brought their import transactions forward with the expectation that Russia’s invasion of Ukraine will cause problems in the supply chain. This led to concerns that economic growth might stall in the first quarter.

The report of the Ministry of Commerce showed a significant increase in retail and wholesale stocks. This is believed to offset the negative impact of the increase in the trade deficit on the gross domestic product.

The data is causing economists to further cut their already low gross domestic product (GDP) forecast for the first quarter. The government will release its first quarter report on gross domestic product tomorrow.

The trade deficit rose 17.8 percent to an all-time high of $125 billion. The increase likely reflected both an increase in quantity and prices. Goods imports increased by 11.5% and rose to 294 billion 600 million dollars. The 15 percent increase in imports of industrial materials, including petroleum products, also affected this.

Imports of consumer goods are 13.6 percent; Imports of motor land vehicles increased by 12.0 percent. Significant gains were also seen in the imports of food and capital goods.

Effects of the Russia-Ukraine war

In the statement made by Goldman Sachs, the reason for the large increase in imports was attributed to the possibility that the imports had already been made due to the Russia-Ukraine war. In the statement, it was noted that companies increased their commodity and final goods stocks due to possible supply problems.

The USA and its allies impose various sanctions on Russia for its invasion of Ukraine. Both Russia and Ukraine are major exporters of commodities, including wheat and sunflower oil.

Goods exports increased by 7.2 percent to 169 billion 300 million. Chief among these is the 12.3% increase in exports of industrial materials. Motor vehicle exports increased by 8.4 percent. There was also an increase in exports of food, capital and consumer goods.

Businesses strengthened their inventories

The increase in imports was driven by businesses that replenished their stocks due to strong domestic demand. Wholesale stocks rose 2.3 percent in March, after rising 2.6 percent in February. Retail stocks rose 2.0 percent after gaining 1.5 percent in February. Motor vehicle stocks increased 1.2 percent.

While the housing market supported GDP growth in the last quarter (housing loans), this momentum is slowing as mortgage and home prices increase. Other data released Wednesday from the Home Loan Bankers Association showed that applications for loans to buy a home fell 8 percent last week compared to the previous week.

According to data from the mortgage financial institution Freddie Mac, 30-year fixed-rate mortgages rose to its highest level since April 2010, with an average interest rate of 5.11 percent for the week ending April 21.

Mortgage interest rates are set to rise further as the Federal Reserve raises interest rates by 50 basis points next week and soon begins to reduce assets.

Trying to cope with the rising inflation, the FED increased the policy interest rate by 25 basis points in March by making the first rate hike in more than three years.

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