The U.S. trade deficit unexpectedly surged. But it is all about higher oil prices and restocking oil inventories. The overall U.S. trade deficit ballooned to $40.2 billion from a revised $36.4 billion gap in November. The December shortfall came in much worse than the market forecast for a $35.7 billion differential. Exports, however, rose 3.3 percent while imports jumped 4.8 percent. The worsening in the trade deficit was largely due to a widening of the petroleum deficit, which came in at $23.5 billion and up sharply from a differential of $19.9 billion the previous month. This was due to both higher prices and increased barrels imported. The nonpetroleum gap actually shrank to $26.9 billion from $27.2 billion in November.
Overall merchandise exports jumped $4.8 billion after a $0.7 billion rise in November. Exports were led by capital goods excluding autos, up $1.8 billion, and industrial supplies, up $1.6 billion. The increase in capital goods was largely in civilian aircraft although other subcomponents also increased. In other end-use categories, export gains were also seen in automotive, consumer goods, and "other." The foods, feeds & beverages component slipped in December.
Merchandise imports surged $8.1 billion, following a $4.4 billion increase in November. By end-use category, the spike in imports was led by industrial supplies, up $4.4 billion of which $3.1 billion was crude oil. Significant increases also were in automotive, up $1.6 billion, and capital goods, also up $1.6 billion. Foods, feeds & beverages edged up while consumer goods excluding autos were essentially unchanged.
The widening in the petroleum deficit was due to both a gain in prices and more barrels. Physical barrels imported jumped 12.9 percent, following a 5.2 percent decline in November. The price of imported oil increased to $73.20 per barrel from $72.54 per barrel in November.
Earlier weakness in the dollar and Asian economic growth continue to boost the trend in U.S. exports. Year-on-year, overall exports in December rose to plus 7.4 percent from minus 2.4 percent in November. Of course, a low base for the comparison helps. Meanwhile imports increased to up 4.6 percent from down 5.6 percent the month before. Despite the low base starting point, it is clear that international trade – exports and imports – is recovering.
The headline number for the December deficit is scary. But seeing that the non-oil deficit actually contracted indicates that the trade picture may actually be improving after swings in oil imports are discounted. The jump in oil imports likely will reverse next month. And exports are still on an uptrend. Nonetheless, the widening of the trade gap is bad news for the dollar.
Market Consensus before announcement
The U.S. international trade gap in November widened to $36.4 billion from a $33.2 billion shortfall in October. Exports gained another 0.9 percent while imports surged 2.6 percent. The worsening in the trade deficit was largely due to an expansion of the petroleum deficit, which came in at $19.9 billion compared to a differential of $17.8 billion the previous month. However, the nonpetroleum gap also grew-to $27.1 billion from $25.6 billion in October. While it might be a little early for the recent strengthening of the dollar to impact exports and imports, sluggish growth in Europe could be slowing U.S. exports. On the import side, the price of crude was higher in December on a seasonally adjusted basis and that likely will bump imports up for the month.