U.S. Trade Gap Continues to Improve as Exports Grow at Record Levels

The December trade deficit was smaller than expected at -$58.8B (consensus -$61.5B). This was a decline from the $63.1B deficit of November, and close to the -$59.3B average for 2007. Exports grew +1.5% MoM, to a new record high for the tenth month in a row, and imports shrank -1.1% MoM. Demand for imported autos and goods from China (-14% MoM, +10% YoY) declined, allowing the gap between imports and exports to shrink by 6.9% MoM. This was the largest monthly improvement in the import/export gap in a year. Unfortunately, petroleum imports rose +4.2% MoM to a new record monthly high, and further price hikes in January will probably cause another record oil import bill in January. Aircraft continue to be large contributors to export growth. For the first time since 2001, the trade deficit shrank in 2007 versus the prior year, which has been a positive for GDP growth. Trade added the most to GDP last year since 1991. A weaker dollar and faster growth in other parts of the world have been the main catalysts for improving the trade deficit recently. For all of last year, the trade deficit narrowed by +6.2%, and this was the best annual improvement since 1991.