The U.S. trade deficit held near its record high in February, just before the Russian invasion of the Ukraine pushed the prices of commodity exports and imports dramatically higher.
The trade deficit in goods and services narrowed by 0.1% to a seasonally adjusted $89.19 billion, according to data released by the Commerce Department on Tuesday. That was little changed from the January trade deficit, which was revised to a high of $89.23 billion. Analysts surveyed by Bloomberg had forecast the trade deficit would fall by 1.3% to $88.50 billion.
A surge in prices, particularly for global energy and food products, has inflated the trade figures in recent months because they are not adjusted for inflation. The data was collected before the Feb. 24 Russian invasion of Ukraine, which has further stoked inflation and threatened to further reshuffle global trade flows.
The trade deficit has soared during the pandemic as it turbocharged the U.S. appetite for foreign goods, which is expected to weigh on economic growth in the first quarter.
“We’re trying to get out of covid times and get back to something normal,” said Austan Goolsbee, a University of Chicago economist and a chairman of the White House Council of Economic Advisers in the Obama administration. “The fact that people shifted what they spend away from services during covid certainly contributes to making the trade balance worse.”
The value of exports rose by $4.1 billion, or nearly 2%, to $228.6 billion in February as U.S. companies brought in higher revenue from foreign sales of industrial supplies in February, including fuel oil and coal, and pharmaceutical products.
Americans spent more on crude oil, chemicals and other products made in other countries, pushing up the value of imports by $4.1 billion, or more than 1%, to $317.8 billion. As the auto industry continued to face a global chip shortage, both exports and imports of cars fell.
International travel picked up as U.S. companies raked in $1.2 billion more from foreign travelers, while Americans spent an additional $0.5 billion on trips abroad, as cases of the Omicron variant fell in February. That came at the same time as signs of a broader recovery in the services sector.
The growing trade deficit shows that the U.S. economy has remained strong even as it faced high commodity and input prices, said Douglas Porter, the chief economist at BMO Capital Markets.
“I don’t see it as a sign of weakness at all,” Porter said. “It’s more indicative of very robust domestic demand.”
Trade figures could remain volatile in the coming months as businesses continue to grapple with ongoing labor and container shortages.
David Fink, the owner of Heidel Hollow Farm in Germansville, Pa., said the supply chain disruptions have left him unable to export hay products to key markets. His farm has not made a sale to the Middle East since the pandemic began, he said, because the costs to ship to that country have skyrocketed.
He would have to pass some of those costs onto foreign buyers, making it difficult to compete with other hay sellers.
“I haven’t gotten any business because my quote is too high. Freight has priced me out of the market,” Fink said. “There’s no end in sight to the price increases.”
Economists have increasingly estimated that the trade deficit could lower gross domestic product, the broadest measure of output in the economy, in the first quarter of 2022.
“The economy is still strong and everything but the trade numbers are going to make it look worse than it otherwise would have been,” said Scott Brown, the chief economist at Raymond James. “It’s a sign that growth here is beyond a sustainable pace. It can’t go on forever.”