US Trade Deficit Unexpectedly Plunges In Biggest Drop Since Global Financial Crisis ~ January 8, 2023

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In a day when strong jobs data (Challenger, ADP, Initial Claims all coming in strong or stronger than expected) has been viewed by markets as bad for risk assets as it signals continued economic strength and continued rate hikes by the Fed, we got yet another conflicting economic signal, this time from the latest US trade deficit, which narrowed in November by much more than expected. According to the BEA, the November trade deficit narrowed to $61.5b from $77.8b in prior month, coming in below the median estimate of $63.0BN (and just barely missing the top end of the range of $61.3BN to $80.5BN from 42 economists).

Remarkably, the 20% one-month decline in the deficit was the single biggest drop in the US trade deficit on a percentage basis going back to the global financial crisis!

And while it would have been welcome economic news if the drop in the deficit was the result of a surge in exports, the plunge was driven not by rising exports but rather by shrinking imports – a telltale sign of economic slowdown – with consumer goods, industrial supplies, capital goods and autos all contributing to the decline, the US Bureau of Economic Analysis said. To wit, while exports fell 2% in Nov. to $251.9BN from $257.0BN in Oct, imports fell a striking 6.4% in Nov. to $313.4BN from $334.8BN in Oct. Here are the detials:

Exports of goods and services decreased $5.1 billion, or 2.0 percent, in November to $251.9 billion. Exports of goods decreased $5.3 billion and exports of services increased $0.2 billion.

  • The decrease in exports of goods reflected decreases in industrial supplies and materials ($3.6billion) and in capital goods ($1.3 billion). An increase in consumer goods ($0.9 billion) partly offset the decreases.
  • The increase in exports of services reflected increases in other business services ($0.1 billion), in telecommunications, computer, and information services ($0.1 billion), and in charges for the use of intellectual property ($0.1 billion). A decrease in travel ($0.2 billion) partly offset the increases.

Imports of goods and services decreased $21.5 billion, or 6.4 percent, in November to $313.4 billion. Imports of goods decreased $20.7 billion and imports of services decreased $0.8 billion.

  • The decrease in imports of goods reflected decreases in consumer goods ($8.8 billion), in industrial supplies and materials ($3.7 billion), in automotive vehicles, parts, and engines ($3.3 billion), and in capital goods ($3.0 billion).
  • The decrease in imports of services reflected decreases in transport ($0.7 billion) and in travel ($0.4billion). An increase in charges for the use of intellectual property ($0.2 billion) partly offset the decreases.

Whether the plunge in imports is due to a the reverse bullwhip effect, or general economic malaise is unclear; adding to the confusion, the slowdown in US consumer demand for foreign goods and services will serve to boost GDP due to the way net trade is imputed for GDP purposes. In other words, expect a jump in Q4 GDP estimates due to a plunge in US imports.

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