U.S. Trade Gap in December Was Widest in Nine Years - Update

02/06/18 10:22 AM EST
By Harriet Torry 

WASHINGTON -- The U.S. posted its largest monthly trade deficit since the recession for December, as stronger global growth increased demand for American-made products while robust U.S. consumer spending boosted imports even more.

The foreign-trade gap in goods and services expanded 5.3% from the prior month to a seasonally adjusted $53.1 billion in December, the highest since October 2008, the Commerce Department said Tuesday. That was far wider than the trade deficit of $52.0 billion economists had expected.

"The big picture here is clear enough; strong domestic demand growth is pulling in imports at a rapid clip," while export growth is still lagging, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.

Imports increased 2.5% in December to a record $256.5 billion, reflecting higher imports of consumer goods like cellphones in a key month of the holiday season, as well as higher imports of vehicles and capital goods.

Exports, meanwhile, rose 1.8% to $203.4 billion. Exports of industrial supplies like chemicals grew, as did exports of capital goods like civilian aircraft.

In December, the WSJ Dollar Index, which measures the U.S. currency against 16 others, fell 0.6%. For the year as a whole, it dropped 7.8%. A weaker dollar supports American manufacturers by making exports relatively cheaper for foreign consumers. Last year was also marked by strong growth in consumer spending, which supports purchases of imported products.

Figures on international trade can be volatile from month to month. In 2017 as a whole, the value of U.S. imports rose 6.7% and U.S. exports increased 5.5% on the year. The overall trade deficit expanded 12.1% compared with 2016 to $566.0 billion.

The U.S. economy has run trade deficits for decades, during both economic expansions and recessions, which economists say reflects the fact that Americans consume more than they produce relative to the rest of the world.

While the U.S. imports more goods than it exports, it runs a modest trade surplus for services. That services surplus narrowed slightly last year, decreasing 1.5% compared with 2016.

Stephen Stanley, chief economist at Amherst Pierpont Securities said "the main takeaway from the December report is that the global economy is solid, and, if anything, the U.S. economy is even more robust."

"Trade volumes are rising sharply and, barring a trade war, should continue to do so in 2018," he said in a note to clients.

The Trump administration has made narrowing the trade deficit a goal, but that is difficult to do when the domestic economy is expanding and consumers' appetite for foreign-made goods is strong.

Trade deficits in goods with China, Mexico and Canada -- which collectively account for more than half of total U.S. goods imports and exports -- all widened in 2017, compared with the prior year, the Commerce Department said.

The trade deficit took a toll on U.S. economic growth during the fourth quarter. Net exports subtracted 1.13 percentage points from the overall 2.6% growth rate in gross domestic product.

Write to Harriet Torry at harriet.torry@wsj.com


(END) Dow Jones Newswires

February 06, 2018 10:22 ET (15:22 GMT)

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