The revolution sweeping U.S. energy production is helping to chip away at a conundrum that has preoccupied economists for decades – the country's yawning trade imbalance.
Lost amid the hullabaloo of March's glum U.S. employment report was news that the U.S. trade deficit contracted to $42.96 billion in February. Two key factors came into play: higher U.S. exports, and oil imports that plunged to their weakest level since 1996.
The oil flows data is significant; given that the world's largest economy has for years imported vast amounts of crude that account for nearly 50 percent of the U.S. trade gap. The country's trade imbalance is the highest among developed economies, and analysts have long identified it as a drag on economic growth.
If the downward trend in oil imports is sustained, it may help boost U.S. growth prospects over time, some economists say, given that exports and imports are key components in calculating gross domestic product.
"You don't want to read too much into just one month, but that is a trend that will be beneficial over time," said Daniel Silver, an economist at J.P. Morgan Chase. On Tuesday, the bank lowered its first-quarter GDP forecast from 4 percent to 3.3 percent, based largely on a sharp decline in wholesale inventories.
Still, the U.S.'s expanding energy production is having an impact on the economy in ways both big and small. Economists say the surge in domestic oil production has helped keep a lid on crude prices in the face of global instability, which has had a trickle-down effect on gas prices.
"The improvement in the petroleum trade balance is often overlooked but bears watching," said Wells Fargo in a research note. "As much as has been said about the emerging American energy boom, we believe expectations for U.S. oil production are still too low and further improvements in the petroleum balance are likely to occur over the course of the year."
That, according to some, holds far-reaching implications for the trade imbalance, which has long bedeviled U.S. policymakers. "In December of last year, the U.S. produced more energy than the Saudis," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "The cheap energy story is a big deal."
Last month's drop in oil imports will likely be neutral at best on first-quarter GDP, Chandler said. However, he added that "in general, it fits into the larger story. It will correct the trade imbalance as the U.S. creates more oil."