By Rheaa Rao


The U.S. Bureau of Economic Analysis is releasing their report on international trade in goods and services with March’s data on Wednesday, May  

Economists forecast a deficit of $41.1 billion, slightly narrower from February’s $47.1 billion. Here’s what to look for:


A falling U.S. Dollar

The U.S. dollar has been sliding and hit its lowest point in eleven months in May. The declining dollar is one of the reasons the Fed didn’t raise the interest rates this past month. In late April, the U.S. dollar fell against the euro and rose against the yen as the European Central Bank and Bank of Japan kept their interest rates the same.

Though the dollar is still strong compared to international currencies, a plummeting dollar would mean that American exports are cheaper for other countries. This could reduce the trade deficit that has been widening this year.

But some economists think that this month’s possibly narrower deficit could be temporary.

“Despite currency weakness, imports will still increase faster than exports,” said Thomas Julien, economist at Natixis North America LLC.


Decline of crude oil imports

Crude oil prices fell to $44.78 per barrel in late April, but according to the U.S. Energy Information Administration’s report high demand will drive crude oil prices higher.

Crude oil imports into the U.S. also fell during late April. Imports have been falling due to increased domestic production. This may reduce the trade deficit over the next few months.


Eurozone’s recovery

The European Commission announced its job and growth forecast this Tuesday. It expects recovery to be slow and steady. This forecast helped gauge the whether Eurozone’s slow recovery has been effected by plummeting prices and a slowdown in China.

But the euro has already gained against the dollar and this may make American exports cheaper overseas. It may also bring in European tourists, which will increase the demand for American services.


Manufacturing data

The slumping U.S. manufacturing sector has been showing signs of expansion for two months in a row. But the lack of demand for American goods has kept exports low in the past few months. This was seen in February’s report where the trade gap increased by 2.6%. But, growth in the manufacturing sector may translate in a lower trade deficit.

At the same time, reports show stagnated investment in the manufacturing sector due to weak global demand because of China’s slowdown, Japan’s weak currency and Brazil’s political turmoil.

David Sloan, senior economist at 4cast Inc., said that a fall in imports was more pronounced than a fall in exports this month, across all categories of goods. But a definite turnaround in the manufacturing is something to keep an eye out for in future reports and can’t be based off only this month’s report.


Merchandise trade

America’s merchandise trade deficit has been the lowest in March than it has in a year. March’s merchandise trade deficit was $56.9 billion, a drop from February’s $63.4 billion. This was because of a slump in imports of merchandise into the U.S. especially in consumer goods and industry supplies.

Last month’s international trade report showed that imports of consumer goods increased by $3.6 billion. This painted a positive image about the American economy, it’s demand and spending prowess. But a decline in merchandise imports, if significant enough in Wednesday’s report, may show a narrowing of the trade deficit gap.

This is not a cause for concern though. “Weak domestic demand, especially in consumer goods indicates a weak first quarter,” said David Sloan, senior economist at 4cast Inc., “But we should be careful about generalizing based on one month’s data.”