by Rheaa Rao

February’s trade deficit widened but importers are stocking up with caution.

Both imports and exports increased this month, but this growth has been subdued, indicating a slowdown in certain sectors of the economy like the manufacturing and automotive industry.

The trade deficit for February was $47.1 billion, which was more than the Bloomberg median consensus of $46.2 billion. This was an increase from January’s revised deficit of $45.9 billion.

International demand seems to have increased as exports climbed to $178.1 billion. But this was offset by strong imports that reached $225.1 billion, a $3 billion increase from January.

“Imports increased this month, but the rate of growth is slower compared to last year,” said Gregory Daco, chief economist at Oxford Economics Limited, “Importers are taking check of their inventory and are more cautious when importing.”

Imports of consumer goods increased by $3.6 billion. This paints a positive image about the state of the American economy. The deficit increased, but if domestic demand increased it means that consumers have more disposable income and are spending more. This increased confidence was seen in this month’s job report as well. Despite lower hiring rates, people are more confident about quitting their jobs. This renewed confidence, with the highest quit rates since 2001, may force up wage rates, possibly leading to an increased demand for consumer goods in the next few months.

On the other hand, an increase in imports is not so good for domestic competitors who lose out to imported products that are cheaper because of the rising dollar. According to Robert Brusca, chief economist at Fact and Opinion economics, the dollar has been chronically overvalued for decades. He points to an enfeebled domestic manufacturing sector that has slowed down production because the strong dollar has made it difficult to for domestic and foreign companies to invest in the U.S.

But despite an increase in imports of consumer products, Daco doesn’t think that international importers are the main competitors of domestic producers. According to him, a large proportion of the imports are a part of the process chain of products- like car parts, for example- that are then made, assembled and sold domestically. He thinks that a smaller proportion of the imports are end-use products, i.e., direct competition with domestic markets.

But export of consumer goods also increased by $1.1 billion, hinting at growing international demand for American products. The rising dollar makes American products more expensive in international markets, so this increase in exports was surprising. Daco calls this increase in exports ‘subdued’ and not significant enough because the strong dollar will keep ensuring that a small increase in exports are met by a more significant increase in imports.

A domestic and international demand for pharmaceutical preparations increased. This was also seen in the jobs report in the past few months, where substantially more jobs are being added to the healthcare industry.

The import of automotive vehicles and its parts decreased by $1.5 billion. But one month doesn’t make a trend, especially since imports of automotive vehicles increased since last year.

“This is a historical trend. Imports of automotive vehicles tend to decrease in the first few months of the year and then trend upwards,” said Erika Czyz of the International Trade Administration, an organization that conducts industry analysis and protects exporters from unfair international competition. Czyz said that this is probably because people spend too much during the holiday season and then use the first few months of the year to save up.

But it’s worth noting that this decrease comes at the same time as the Ford Motor Company’s public announcement that they would be building a $1.6 billion auto-assembly plant in Mexico, adding 2,800 jobs.

The strong dollar has continued to make imports cheaper in U.S. markets, while making it more profitable for American companies or multinationals to invest abroad, slowly brewing trouble for some U.S. industries.