WASHINGTON (Reuters) – The U.S. trade deficit in goods widened to a record high in March as businesses ramped up efforts to bring in merchandise ahead of President Donald Trump’s sweeping tariffs, suggesting trade was a large drag on economic growth in the first quarter.
While some of the imported goods ended up in warehouses at wholesalers, economists said this would not blunt the anticipated hit on gross domestic product from the deterioration in the trade deficit.
The report from the Commerce Department’s Census Bureau prompted economists to sharply downgrade their GDP estimates for last quarter to show a steeper decline rather than growth just stalling. Goldman Sachs now sees GDP contracting at a 0.8% annualized rate while JPMorgan forecasts output declining at a 1.75% pace.
The economy grew at a 2.4% rate in the fourth quarter.
The government is scheduled to publish its advance GDP estimate for the January-March quarter on Wednesday, which will coincide with Trump’s 100 days in office.
The disruptions wrought by Trump’s ever-shifting tariffs position, which has sowed confusion and uncertainty among households and businesses, were also evident in other reports on Tuesday. Consumer confidence plunged to a nearly five-year low in April, while job openings in March decreased to the lowest level since last September. But businesses are not yet responding to the heightening uncertainty by firing workers, likely keeping the economy afloat for now.
“A grab bag of economic releases points to a weaker economy in the first half of 2025,” said Bill Adams, chief economist at Comerica Bank. “Unless something changes quickly to reassure Americans that the economy will be okay, the headwind from less consumer discretionary spending and less business capital spending could grow in the second quarter.”
The goods trade gap increased 9.6% to $162.0 billion, the highest on record, the Commerce Department’s Census Bureau said. Economists estimated trade could have sliced off as much as 1.9 percentage points from GDP last quarter.
Goods imports soared $16.3 billion to an all-time high of $342.7 billion. They were driven by a 27.5% jump in imports of consumer goods. There were also solid increases in imports of automotive vehicles and capital goods. But imports of industrial supplies, which had been boosted by non-monetary gold, declined 13.5%. Food imports fell as did those of other goods.
Economists have cautioned that imports, which are a subtraction in the calculation of GDP, could greatly exaggerate an anticipated economic slowdown in gross domestic product growth in the January-March quarter.
Nonetheless, the uncertainty fueled by the often chaotic tariff policy, which has plunged the United States into a damaging trade war with China, is causing tremors throughout the economy. A separate report from the Conference Board showed its consumer confidence index dropped 7.9 points to 86.0 this month, the lowest reading since May 2020.
It said write-in responses on the issues affecting households’ views of the economy showed that tariffs “are now on top of consumers’ minds, with mentions of tariffs reaching an all-time high.” The decline was across all age and most income groups and all political affiliations.
Consumers also increasingly worried about the labor market. The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, narrowed to 15.1 from 17.5 in March.
This measure correlates to the unemployment rate in the Labor Department’s monthly employment report. There are, however, no signs yet that businesses are laying off workers as they remain in a wait-and-see mode.
Stocks on Wall Street were mostly higher. The dollar gained versus a basket of currencies. U.S. Treasury yields fell.
STEADY LABOR MARKET
A third report from the Labor Department showed job openings decreased 288,000 to 7.192 million by the last day of March, the lowest level since September. Layoffs dropped to a nine-month low, and workers still retained enough confidence in the labor market to quit current positions in search of greener pastures.
There were 1.02 job openings for every unemployed person, slightly down from 1.06 in February. Economists said businesses were wary of letting workers go after experiencing difficulties finding labor during and after the COVID-19 pandemic.
“The push and pull has left the labor market in a fragile stasis that makes it vulnerable to being knocked off balance should the deteriorating outlook for growth come to fruition,” said Sarah House, a senior economist at Wells Fargo.
Economists continued to expect the Federal Reserve to resume cutting interest rates sometime this year.
The Census Bureau report showed goods exports rose $2.2 billion to $180.8 billion in March.
They were lifted by shipments of automotive vehicles, food and industrial supplies. But exports of capital and consumer goods declined. While a weaker dollar, spurred by investor fears over the Trump administration’s protectionist trade posture, is supportive of exports, gains could be limited by other nations imposing retaliatory duties on U.S.-made goods.
Some of the imports last month landed in warehouses as businesses sought to stock up. Wholesale goods inventories increased 0.5%, reflecting strong rises in stocks of both long-lasting manufactured and nondurable goods.
That followed a similar gain in February. But retail inventories fell 0.1%, matching February’s drop. They were weighed down by a 1.1% decline in stocks at motor vehicles and parts dealerships. Excluding motor vehicles and parts, retail inventories rose 0.4% after gaining 0.1% in February. This measure goes into the calculation of GDP.
“While the Fed will be constrained from rate cuts in the near term due to tariff-induced price hikes and potential supply chain disruptions adding to inflation pressures, there will be growing pressure to cut interest rates meaningfully later in the year,” said James Knightley, chief international economist at ING.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
By Lucia Mutikani
