The U.S. trade deficit narrowed in November as imports of consumer goods fell to a one-year low amid slowing domestic demand, a trend that, if it persists in December, could result in trade having no impact on economic growth in the fourth quarter.
Quick Read
- Trade Deficit Narrowed in November: The U.S. trade deficit contracted by 2.0% to $63.2 billion, with a notable decline in imports of consumer goods.
- Decrease in Consumer Goods Imports: Imports of consumer goods fell to a one-year low, indicating slowing domestic demand. This decrease led to the lowest level of consumer goods imports since November 2022.
- Decline in Exports: Exports also declined in November due to reduced overseas demand, reflecting a global slowdown following interest rate increases to address inflation.
- Potential Impact on Q4 Growth: If the trend persists in December, trade could have a neutral impact on economic growth in the fourth quarter.
- Federal Reserve’s Rate Hikes: The rate hiking cycle by the Federal Reserve is likely concluded, with expectations of rate reductions starting as early as March.
- Softening Domestic and Global Demand: Weakening exports and imports suggest softening demand both in the U.S. and globally.
- Trade Gap Revision: October’s trade gap was revised to $64.5 billion from the previously reported $64.3 billion.
- Imports Breakdown: Overall imports declined by 1.9%, with goods imports dropping 2.3%. There were decreases in imports of pharmaceutical preparations and industrial supplies, but crude oil imports increased.
- Exports Breakdown: Goods exports decreased by $5.4 billion, with drops in industrial supplies and materials, motor vehicles, parts, engines, and consumer goods.
- Real Goods Trade Deficit: Adjusted for inflation, the goods trade deficit contracted to $84.8 billion. The average deficit for the fourth quarter is similar to the third quarter.
- Growth Estimates for Q4: Fourth-quarter growth is projected to be curbed by slower inventory accumulation and could be as high as a 2.5% annualized pace.
- Anticipated Slower Demand in 2023: Businesses are preparing for slower demand due to extensive interest rate hikes since March 2022.
- Minimal Impact of Red Sea Disruptions: Economists expect limited disruptions to U.S. trade from issues in the Red Sea, with more concern over drought-related delays in the Panama Canal.
- Services Trade: Imports of services fell slightly, while exports of services reached a record high, resulting in the highest services surplus since March 2018.
Reuters has the story:
Commerce Dept.: Falling imports compress US trade deficit in November
Newslooks- WASHINGTON, Jan 9 (Reuters) –
The U.S. trade deficit narrowed in November as imports of consumer goods fell to a one-year low amid slowing domestic demand, a trend that, if it persists in December, could result in trade having no impact on economic growth in the fourth quarter.
The report from the Commerce Department on Tuesday also showed exports declined in November amid cooling demand overseas. Demand is slowing both in the United States and abroad following hefty interest rate increases by global central banks since 2022 to tackle rampant inflation.
The Federal Reserve’s rate hiking cycle has likely ended, with financial markets expecting the U.S. central bank to start lowering borrowing costs as soon as March.
“The weakness of both exports and imports in November suggests that weaker growth overseas is now being matched by a softening in domestic demand too,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
The trade deficit contracted 2.0% to $63.2 billion, the Commerce Department’s Census Bureau said. Data for October was revised slightly to show the trade gap widening to $64.5 billion instead of the previously reported $64.3 billion.
Economists polled by Reuters had forecast the trade deficit would rise to $65.0 billion in November.
Imports declined 1.9%, or $6.1 billion, to $316.9 billion. Goods imports dropped 2.3% to $257.4 billion.
Imports of consumer goods fell $4.1 billion to the lowest level since November 2022, led by a $1.9 billion decrease in cell phones and other household goods.
There were also declines in imports of pharmaceutical preparations as well as industrial supplies and materials, which include petroleum products. But crude oil imports increased $1.5 billion. Capital goods decreased $0.7 billion, pulled down by declines in drilling and oilfield equipment, suggesting weak business spending on equipment persisted in the fourth quarter.
Exports decreased 1.9%, or $4.8 billion, to $253.7 billion. Goods exports dropped $5.4 billion to $168.0 billion, with industrial supplies and materials falling $3.6 billion. That reflected declines in shipments of non-monetary gold, crude oil, and organic chemicals.
Exports of motor vehicles, parts and engines also fell, as did those of consumer goods, which dropped to the lowest level since December 2022. But exports of capital goods were the highest on record.
GOODS TRADE GAP SHRINKS
The goods trade deficit narrowed 0.6% to $89.4 billion in November. When adjusted for inflation, the goods trade deficit contracted $2.3 billion, or 2.7%, to $84.8 billion. The so-called real goods trade deficit is so far averaging $86.0 billion in the fourth quarter, little changed from the third-quarter’s average.
Trade was neutral to the economy’s 4.9% growth rate in the third quarter. It has not contributed to growth in gross domestic product for two straight quarters. Fourth-quarter growth estimates are as high as a 2.5% annualized pace.
Growth in the fourth quarter is expected to be curbed by a smaller pace of inventory accumulation, as businesses anticipate slower demand this year following 525 basis points worth of interest rate hikes by the Fed since March 2022.
The government is scheduled to publish its snapshot of GDP growth for the October-December period later this month.
Economists saw limited disruptions to trade flows from disruptions in the Red Sea.
“Even if shipping disruptions in the Red Sea prove longer-lasting, the impact to U.S. trade is likely to be modest outside of the run-up in shipping prices,” said Matthew Martin, a U.S. economist at Oxford Economics. “Drought-related delays to shipping through the Panama Canal is probably the bigger downside risk.”
Imports of services fell $0.1 billion to $59.6 billion as an increase in travel was more than offset by a decline in transport.
Services exports increased $0.6 billion to a record high of $85.7 billion, lifted by travel, other business services, as well as transport and government goods and services. The services surplus of $26.2 billion was the highest since March 2018.
