Record petroleum exports help to shrink US trade deficit in April

By Lucia Mutikani

WASHINGTON, June 9 (Reuters) - The U.S. trade deficit narrowed in April as exports of petroleum products and capital goods jumped to record highs, a trend that if sustained, will put trade on course to contribute to economic growth in the second quarter.

The report from the Commerce Department on Tuesday suggested no major impact on trade flows from the U.S.-backed war with Iran, which has disrupted shipping in the Strait of Hormuz. Tariffs also appeared to be doing little to curb imports. Businesses ramping up spending on artificial intelligence helped to lift capital goods imports to a record high in April.

"Soaring oil exports are helping to narrow the U.S. trade gap, with tariffs playing a more minor role in slowing imports," said Sal Guatieri, a senior economist at BMO Capital Markets. "Though early in the quarter, this suggests some upside risk to second-quarter GDP growth estimates."

The trade gap contracted 1.2% to $55.9 billion, the Commerce Department's Bureau of Economic Analysis and Census Bureau said. Data for March were revised lower to show the deficit at $56.6 billion instead of the previously reported $60.3 billion.

Economists polled by Reuters forecast the trade deficit would shrink to $56.1 billion in April. Exports increased 2.6% to $327.1 billion, a record high. Goods exports surged 4.1% to a record $221.3 billion. Petroleum exports increased to a record high of $36.7 billion from $27.6 billion in March, driven by higher volumes and oil prices tied to the Middle East conflict.

The U.S. is a net oil exporter. Crude prices have shot above $100 per barrel since the war started in late February. The increase in petroleum products, including crude oil, pushed exports of industrial supplies and materials to a record high of $89.0 billion. The nation's petroleum trade surplus swelled to a record high of $17.7 billion from $9.4 billion in March.

"The good news is that the trade picture is moving into better balance at the start of the second quarter ... but the bad news is the export growth looks uncertain, as much of it appears to be the result of higher energy prices from the Iran conflict," said Christopher Rupkey, chief economist at FWDBONDS.

Exports of capital goods increased $4.0 billion to a record high of $70.3 billion amid strong gains in computers and civilian aircraft. Consumer goods exports increased $1.7 billion.

The increase in overall exports outpaced imports, which rose 2.0% to $383.0 billion in April. Goods imports advanced 2.1% to $304.9 billion. They were lifted by a $7.0 billion increase in capital goods, mostly computers, semiconductors and telecommunications equipment, reflecting the AI spending spree.

But imports of industrial supplies and materials fell $0.9 billion as petroleum products volumes dropped.

IMPROVED PROSPECTS FOR SECOND-QUARTER GROWTH

The overall goods trade deficit contracted 2.8% to $83.7 billion. When adjusted for inflation, the goods trade gap narrowed $1.5 billion, or 1.8%, to $84.3 billion. Trade has been a drag on gross domestic product for two straight quarters.

"The latest trade data bode well for GDP when excluding trade in gold," said Stephen Brown, chief North America economist at Capital Economics.

The Atlanta Federal Reserve's GDP tracking estimate for the second quarter is running at a 3.3% annualized rate. The economy grew at a 1.6% pace in the first quarter.

Stocks on Wall Street were trading lower. The dollar eased against a basket of currencies. U.S. Treasury yields slipped.

The nation's goods trade deficit with China decreased $2.6 billion to $12.0 billion, with both exports and imports declining. The U.S. had goods trade deficits with Taiwan, Vietnam, Mexico, the European Union, Canada and South Korea among other nations.

President Donald Trump's administration has defended its protectionist trade policy as necessary to address these imbalances. The trade surplus with the United Kingdom dropped $3.8 billion to $2.6 billion in April, reflecting declines in both exports and imports.

Exports of services fell $0.4 billion to $105.8 billion in April, pulled down by weakness in travel, transport and maintenance and repair services. Exports of other business services, however, increased. Imports of services shot up $1.3 billion to $78.0 billion amid gains in transport, travel and insurance services.

The housing market is showing tentative signs of stabilizing, though rising mortgage rates because of the war and still-tight inventory continue to cast a shadow over the sector.

Existing home sales jumped 3.2% in May to a seasonally adjusted annual rate of 4.170 million units, the National Association of Realtors said in a separate report. Home resales, which are counted at the closing of a contract, increased 3.2% on a year-over-year basis in May. The war is fanning inflation, driving up the U.S. Treasury yields that mortgages track.

The average rate on the popular 30-year fixed-rate mortgage has increased by about 50 basis points since the war started. With prospects of a Federal Reserve interest rate cut fading as inflation rises and the labor market shows resilience, mortgage rates are likely to remain elevated.

The government is expected to report on Wednesday that the Consumer Price Index jumped 4.2% on a year-over-year basis in May, a Reuters survey of economists predicted, which would be the largest gain since April 2023. The CPI rose 3.8% in April.

Inflation is outpacing wage growth. The median existing home price last month rose to $429,300, up 1.3% from a year ago. The inventory of existing homes increased to 1.55 million, up 0.6% from a year ago.

"The renewed rise in mortgage rates since the war began, and corresponding dip in purchase applications, suggest sales will tread water at best over the next month or two," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

(Reporting by Lucia Mutikani; Editing by Andrew Heavens and Paul Simao)