by Calculated Risk on 5/09/2005 02:50:00 PM

The current projection for the March trade deficit is $61.2 Billion (briefing.com) to $61.7 Billion (NYTimes). My feeling is this projection is on the low side.

In the comments to a previous post, Brad Setser excerpted some of Morgan's view ($61.2 Billion forecast) on oil:

On the imports side, a sharp rise in oil prices should more than offset some moderation in volumes and lead to another sizable increase in petroleum products.

First, according to the Census Bureau, the contract price for imported crude in Feb was $36.85. According to the DOE, the contract price for Mar was close to $46. Also there was no "moderation in volumes" according to the DOE:


Click on graph for larger image.

Source: Dept of Energy

The cost for imported energy related petroleum products was $14.9 Billion in February. The cost for imported petroleum in March will be approximately $20 Billion.

The uncertainty in this report is from the impact of slowing US demand in March (the "soft patch") and the impact of the slowing economies in Europe. (See Ken's comments too) Trade with China is the largest contributor to the trade deficit, and it appears that China's economy was still going strong in March (about 25% of the total goods deficit in February was to China).

Finally, Morgan concludes with:

"Note that our forecast trade deficit is about the same as the Bureau of Economic Analysisassumed in preparing the advance estimate of Q1 GDP."

If Morgan is underestimating the trade deficit, then there will also be a significant reduction in Q1 GDP.