• The trade deficit in goods and services came in at $68.9 billion in February, larger than the consensus expected $67.6 billion.
• Exports rose by $5.8 billion, led by civilian aircraft, crude oil, and soybeans. Imports rose by $7.1 billion, led by computers, cellphones & other household goods, and autos.
• In the last year, exports are up 4.1% while imports are up 2.8%.
• Compared to a year ago, the monthly trade deficit is $1.2 billion smaller; after adjusting for inflation, the “real” trade deficit in goods is $1.0 billion smaller than a year ago. The “real” change is the trade indicator most important for measuring real GDP.

Implications:  The trade deficit in goods and services grew to $68.9 billion in February as imports rose faster than exports.  However, we prefer to focus on the total volume of trade, imports plus exports, as it shows the extent of business and consumer interaction across the US border. This measure grew substantially in February, rising by $13.0 billion, pushing total trade volume up 3.4% from a year ago. Exports are now up 4.1% versus a year ago, while imports are up 2.8%.  Notably, there is a major shift going on in the pattern of US trade.  Through the first two months of the year, imports from China were down 1.7% versus the same period in 2023.  China used to be the top exporter to the US.  Now the top spot is held by Mexico as China has fallen to number two with Canada nipping at its heels.  Meanwhile, global supply chain pressures have eased substantially over the past few years.  This was confirmed by the New York Fed’s Global Supply Chain Pressure Index in February, with the index moving back into positive territory, 0.11 standard deviations below the index’s historical average. For some perspective, two years ago in the month of February the index sat 2.77 standard deviations above the index’s historical average.  Expect some temporary volatility though as Yemen’s Houthi rebels continue to deter container ships from transiting the Red Sea and Bab-el-Mandeb Strait, adding volatility to shipping costs.  Also in today’s report, the dollar value of US petroleum exports exceeded imports once again.  This marks the 24th consecutive month of the US being a net exporter of petroleum products. In employment news this morning, initial claims for jobless benefits rose 9,000 last week to 221,000, while continuing claims declined by 19,000 to 1.791 million. We expect Friday’s payroll report to show a nonfarm payroll gain of 212,000 in March.