HomeContributorsFundamental AnalysisUS: Strength in Consumer Demand Pushes Trade Deficit Higher

US: Strength in Consumer Demand Pushes Trade Deficit Higher

The U.S. trade deficit deteriorated further, to $53.1 billion compared to market expectations of $52.1 billion. For the whole of 2017, exports increased a healthy 5.5 percent while imports increased 6.7 percent.

Deficit Continued to Increase in December

The U.S. trade deficit in goods and services increased to a higher-thanexpected $53.1 billion in the last month of 2017 from a slightly downwardly revised deficit of $50.4 billion in November. Most of the difference in December was an increase in the deficit of goods, which went up $2.6 billion while there was a decline of $0.1 billion in the surplus for services. Exports of goods increased $3.4 billion while imports of goods increased $6.0 billion during December. In real terms, exports of goods increased $3.3 billion while imports of goods increased $5.3 billion during the month. Both real exports and imports of goods were revised down for November, by $0.5 billion and $0.6 billion, respectively, while real exports of services were revised up $0.1 billion. The increase in exports of food, feeds, and beverages was $448 million while industrial supplies and materials’ exports were up $1.5 billion. On the other hand, capital goods except automotive exports were up $1.2 billion. Automotive vehicles, parts, and engines exports were down $75 million in the month while consumer goods exports were down $208 million. On the imports of goods side, foods, feeds and beverages were up $249 million while industrial supplies and materials’ imports were up $567 million. Meanwhile, capital goods except automotive were up $837 million. The biggest component of the increase in the goods deficit was an increase of $1.1 billion in automotive vehicles, parts and engines and a $3.2 billion increase in consumer goods imports.

Signs of Good Times for the U.S. Economy

The improvement in growth in the United States and global economies also has its downside risks as higher economic growth across the world leads to a deterioration in the trade balance for some countries and an improvement of the trade balance for other. Although trade must balance at the overall world level every time, this does not mean that trade must balance for each particular country every time. Some countries across the world are net exporters, while others are net importers. For many decades, the U.S. economy has been a net importer, which means that as the economy improves the country’s trade deficit also increases (for more on this please see "U.S. Trade Deficit Widening: Trouble Brewing?," which is available on our website). Although there are negative implications about a deterioration in the trade balance, i.e., a higher current account deficit which needs to be financed by higher capital inflows from the rest of the world, the short to medium term implications are positive. Consumers who are feeling positive about the future tend to consume at a faster pace, propping up economic growth as well as import growth. But it is not only consumers who tend to overspend in good times. Tax reform is probably going to put further pressure on the trade and current account deficit as firms invest in more capital equipment to increase productive capacity.

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