- The US January trade deficit, as expected, represented an increase from December’s -$44.3B.
- The deterioration resulted from a strong 2.3% rise in imports partially offset by a modest 0.6% rise in exports.
The increase in imports represented the fourth consecutive monthly increase that averaged a robust 1.6% per month. This strength in part reflects the impact of the strong U.S. dollar lowering the price of imports. The nominal increase in January imports was also helped by rising oil prices that sent petroleum imports up a sizeable 18.4%. However, it was not just a price story with the volume of petroleum imports up a solid 9.2%. Excluding the petroleum component, imports we up a solid 1.3% on a nominal basis and 1.4% on a volumes basis.
The increase in exports in January was largely a petroleum story with this component up 13.7% in the month. A lion’s share of the increase reflected volumes which jumped 12.7%. Excluding this component, exports dropped 0.6% on a nominal basis and 0.5% on a volumes basis.
The report showed a deteriorating trade deficit with China and Canada but an improving deficit with Mexico, the EU and Japan.
Our Take:
The deterioration in the January deficit occurred largely as a result of imports rising for the fourth consecutive month. For 2017 as a whole imports are expected to increase 3 1/2% that would be up from 1% gain achieved in 2016. This strengthening is consistent with the U.S. dollar appreciating further this year reflecting a Fed continuing to tighten monetary policy in the face of steady policy in most other major economies. Exports are expected to recover this year following two years of underperformance though the strong currency will limit the increase to a moderate 2%. Imports outpacing exports results in net exports continuing to be a small drag on growth in 2017. The expected strengthening in U.S. business investment along with still robust consumer spending will contribute to overall GDP growth strengthening this year to an above-potential rate despite the drag from trade.
