Trade Deficit Smaller than Expected in January

The U.S. trade deficit was smaller than expected in January, and was also revised to a smaller figure for December.  The January deficit was -$58.2B (consensus -$59.5B), and December was revised narrower by $0.9B to -$57.9B. 

 

Higher exports were the main cause of the improvement as foreign demand for U.S. goods and services rose +1.6% MoM to a record high of $148B in January.  The weaker dollar (-10% YoY) is helping support export demand as U.S. goods, which are becoming more price competitive with overseas products, but it also means that raw materials, such as crude oil, are becoming more expensive.  Export growth is one of the few positives for GDP growth at the moment, and impacts everything from manufacturing to agricultural goods.  The reduced trade deficit may help GDP growth in the first quarter.

 

Imports grew +1.3% MoM, and are also at a record high pushed higher by rising prices, and volumes, of crude imports in January.  Remeber that crude oil first hit $100 in January of this year.  If petroluem imports are excluded, the trade gap was only $32.1B, the smallest since 2002.  This month, the oil deficit exceeded the deficit for the rest of the economy for the first time since 1992 as demand for other consumer products from abroad is easing.  Domestic purchases of TVs, clothes, toys and appliances all dropped last month, as the U.S. economy slows.  As businesses become more careful, they also reduced demand for for machinery and computers produced overseas in January.

 

The trade gap with China rose to $20.3B.  China rose to become the U.S.'s largest trade partner last year, pushing Canada into second place.  The trade gap with the European Union was the smallest since 2002.