The Benefits of a Weak Dollar

May 11, 2005 — -- The U.S. trade deficit shrank last month according to a government report out this morning. Figures from the Census Bureau show that the country bought $55 billion more in imported goods and services than it sold in exported goods and services during March. That's a one-month drop of 9.2 percent from February's revised $60.6 billion figure.

Today's number was a pleasant surprise; economists had been expecting another record trade deficit of $61.5 billion.

Of note: the U.S./China trade gap fell to $12.9 billion (a one-month drop of $1 billion) as we sold more industrial engines and semiconductors to the Asian giant. The United States also bought fewer Chinese goods -- cutting back on Chinese-made apparel (a glut of textiles made its way to U.S. shores in previous months after a WTO quota system expired) and toys.

What does that mean? We might finally be seeing the benefit of a weak dollar, which makes American goods and services less expensive in the global marketplace.

Today's positive news was not helped along by the high price of oil during March. The report shows that the U.S. "petroleum deficit" was the second-highest number on record; $17 billion last month.

Despite the difficult oil situation, the United States saw an increase in international sales of its capital goods and foods/beverages to overseas customers during March.

But it wasn't just increasing international sales of U.S. goods that brought the deficit down; we bought less from our trading partners. The report shows that Americans bought $2.4 billion less in consumer goods from overseas during March. We also cut back on imported auto parts, engines and vehicles to the tune of $1.3 billion.

How much does this matter? Moderately important. Economists have been waiting for several months to see the benefits of a falling dollar.