* Trade deficit increases 11.6% in March
* Exports dive 9.6%; imports fall 6.2%
* ISM services industry index drop below 50 in April
By Lucia Mutikani
WASHINGTON, May 5 (Reuters) - 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.
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.
RECORD EXPORTS PLUNGE
In March, the politically sensitive goods trade deficit with
China decreased $4.2 billion to $11.8 billion, a 16-year low.
Imports from China fell, while exports to that country rose.
When adjusted for inflation, the overall goods trade deficit
increased $6.5 billion to $75.3 billion in March. Despite's
March's increase, the so-called real goods trade deficit
narrowed sharply in the first quarter.
But trade's contribution to first-quarter GDP was offset by
a sharp drawdown in inventories as well as weaker consumer
spending and business investment because of plunging imports.
In March, exports dropped a record 9.6% to $187.7 billion,
the lowest since November 2016. Goods exports tumbled 6.7%, the
most since December 2008, to $128.1 billion. There were
decreases in exports of capital goods, which fell $2.0 billion
to $42.6 billion, the lowest since November 2016.
Exports of motor vehicles and parts dropped $2.5 billion to
$11.3 billion in March, the weakest since November 2011.
Shipments of consumer goods hit a seven-year low in March.
Exports of services tumbled $10.8 billion to $59.6 billion, the
lowest level since November 2013, hurt by travel restrictions
because of COVID-19.
Imports dropped 6.2% to $232.2 billion, the lowest since
November 2016. The percentage decline in imports was the biggest
since January 2009. Goods imports fell 2.3% to $193.7 billion in
March, the lowest since August 2017.
The import bill has been shrinking as the United States
waged a trade war with China. A sharp reduction in crude oil
imports has also been a factor, with the United States becoming
an oil exporter last year. The country posted a record $2.1
billion petroleum surplus in March.
Tensions have flared up between Washington and Beijing over
the origins of the coronavirus, raising fears of an escalation
in the trade war between the two economic giants.
In March, imports of automotive vehicles, parts, and engines
dropped $2.7 billion to $27.8 billion, the lowest since February
2015. Consumer goods imports decreased $4.0 billion to $47.4
billion, the lowest since April 2016. There was a sharp decline
in cellphone imports.
The petroleum import bill in March was the smallest since
May 2016. Imports of services were down $10.7 billion to $38.5
billion in March, the least since August 2013.
"This was a tough report, but is likely only the beginning,"
said Tim Quinlan, a senior economist at Wells Fargo Securities
in Charlotte, North Carolina. "Even as states begin to re-open
and factories come back online, trade will remain under
pressure."
(Reporting By Lucia Mutikani;
Editing by Jonathan Oatis and Andrea Ricci)