U.S. Trade Deficit Takes a JUMP!
It appears an unexpected jump in the U.S. trade deficit is an indication that the economy may be in for a bit of a slowdown in the first quarter. The trade deficit increased to near a five-year high this past January.
The Commerce Department said on Tuesday that the trade gap increased 9.6 percent to $48.5 BILLION. This number was also buoyed by imports led by cell phones and automobiles. That was the highest level since March 2012. When adjusted for inflation, the trade deficit rose to $65.3 BILLION from $62.0 BILLION in December 2016.
1st Quarter Questions?
Inflation adjusted imports and exports were the highest on record in January. While this indicated that domestic demand was improving and stronger economic growth among U.S. trading partners was gaining some vitality, the larger trade deficit suggests trade could again have a negative impact on first quarter growth for 2017.
Housing starts, consumer spending and pre-construction expenditures are indicators that the economy is still struggling to regain momentum early in the first quarter….especially once you consider GDP growth slowed to a 1.9 percent annualized rate in the final three months of 2016.
GDP in the fourth quarter was cut by 1.7% due to trade. Once the trade data was released, the Atlanta Federal Reserve slashed its first-quarter GDP estimates by five-tenths of a point….lowering expectations to a dry 1.3%.
Currently the USD is little changed in trading against the standard basket of currencies, while prices for U.S. government bonds have slipped of late.
Oil & Imports….
The price of imported oil was averaging around $43.94 per barrel of sweet crude in January. This would have been the highest set price for crude since August 2015…pushing the value of petroleum imports to a two-year high. Imports of cell phones and other household goods also rose to $1.0 BILLION, while automobile imports also touched record highs.
China has accounted for the bulk of most imports, providing $41.4 BILLION worth of products for the month of January. This was an increase of 5.1% from December. There were also strong gains in the imports of industrial supplies and materials as well as capital goods on the balance sheet.
The exports of goods and services climbed 0.6 percent to $192.1 BILLION, the highest level since December 2014. They were supported by shipments of industrial supplies and materials, which also hit their highest level in over two years.
When you consider the overall effect of the collated data for January, it is apparent that the new Administration has a much greater challenge ahead of it than initially anticipated. The current negative numbers for the trade deficit for the first month of 2017 seem to have a dampening effect on the “Great Expectations,” the new Administration has alluded to.
It appears as though it will require much greater scrutiny for foreign currency traders as well as those who work in the import- export industry through the next several months. As the new trade policies of the Trump White House are released and old, established trade policies are reviewed….a great deal of uncertainty may exist for the foreseeable future.
It is specifically for these reasons that working with a company that you can trust to keep a finger on the pulse of these indicators are more important than ever. At MosaicaFX we are available for consultation at your convenience. Let us assist you in these uncertain times to secure your profits and navigate these choppy waters.