Export growth stalled in October, potentially dragging down GDP

December 5, 2017 - The U.S. trade deficit widened in October largely because of a slowdown in exports and an increase in imports of oil and other foreign goods, which could drag down the country’s growth at the end of 2017.

The foreign-trade gap in goods and services expanded 8.6% from the prior month to a seasonally adjusted $48.73 billion in October, the Commerce Department said Tuesday. Economists surveyed by The Wall Street Journal had expected a narrower deficit of $47.5 billion.

Imports rose 1.6% in October from the prior month, while exports were little changed.
The U.S. imported more barrels of crude oil in October compared with the prior month, and at a higher average price. Increased imports of consumer goods, including cellphones, also contributed to the month’s rise. Exports were largely unchanged in October because the U.S. exported fewer soybeans and civilian aircraft than it had in September, offset by more exports of industrial supplies and materials

If export growth continues to stall in November and December while imports continue to pick up, gross domestic product, a measure for U.S. economic growth, could be significantly lower in 2017’s last quarter than it was in previous quarters. In short, if consumers and producers are spending more on foreign products, while foreigners were spending less on American-made goods and services, that brings down overall spending on U.S. products world-wide.

To be sure, the export categories that dropped in October are typically volatile and prone to large swings from month to month, so soybeans or civilian aircraft exports could pick up again in 2017’s remaining two months.

“The widening in the trade deficit in October was driven by a suspiciously large fall in food exports which is likely to be reversed next month…Even accounting for some rebound in the final two months of the quarter, it seems likely that imports will outpace exports in the fourth quarter, meaning net trade will be a small drag on economic growth,” said Michael Pearce, an economist at Capital Economics, in a note to clients.
Several powerful late-summer hurricanes may have affected trade data for recent months, though the Commerce Department said the “effects generally cannot be isolated.”

International trade data can be volatile from month to month. In the first 10 months of 2017, the value of U.S. imports rose 6.5% and exports increased 5.3% compared with the first 10 months of 2016. The overall trade deficit widened 11.9% so far this year compared with the same period in 2016.

World trade flows have grown this year, as global economies are growing in sync and at nearly the best paces since the recession.

Strong U.S. consumer spending, buoyed by a tight labor market and sky-high confidence, has also helped drive the recent ramp-up in imports.

The dollar has weakened this year, making U.S.-produced products cheaper for foreign consumers. Indeed, many U.S. exporters have seen boosted profits in 2017 as a result. If the dollar continues to weaken and global demand for goods continues to pick up, 2018 could be set for a strong year of economic growth in the U.S., Mr. Pearce said.
Historically speaking, the U.S. imports more good than it exports, but runs a modest trade surplus for services. Economists attribute the chronic trade deficit the U.S. has faced for decades to Americans consuming more than they produce relative to the rest of the world’s economies.

Narrowing this trade deficit has been one of President Donald Trump’s priorities since taking office, and he has turned a critical eye toward trade agreements made among multiple countries.

The White House is attempting to renegotiate the North American Free Trade Agreement, but has said it could walk away from the pact with Mexico and Canada if it can’t broker what the administration sees as a better deal. Mr. Trump also pulled the U.S. out of the Trans-Pacific Partnership in early 2017, a pact that would have bound closer together the economies of 12 nations.

Source: The Wall Street Journal