This morning, the U.S. Department of Commerce issued its latest report on the international trade gap and it was an encouraging snapshot of the U.S. economy. Specifically, data showed that the U.S. trade gap narrowed during the month of December, to a deficit of $38.5 billion—exports rose to $186.4 billion, while imports fell to $224.9 billion. That figure was significantly better than the revised $48.6 billion deficit recorded during the month of November and far lower than the consensus expectation of a $45.4 billion deficit.
When broken down into individual components, the trade gap figure is just as uplifting, as several sectors of the economy contributed to the latest improvement. Specifically, the increase in exports from November to December reflected: a $3.8 billion increase in industrial supplies and materials; a $0.3 billion pickup in foods, feeds, and beverages; and a $100 million increase in other goods. This offset minor setbacks in the capital goods and automobile vehicles, parts, and engines exports, which registered respective declines of $400 million and $300 million.
The latest report in which exports rose by $8.6 billion—a significant improvement from recent quarters—is clearly an indication that the U.S. economy did much better in the final quarter of 2012 than last week’s initial GDP estimate of 0.1% contraction suggests. We would not be surprised if next month’s reading of fourth-quarter 2012 GDP was revised to show some growth. The latest trade gap figures, along with recent better-than-expected reports on manufacturing and nonmanufacturing activity, are encouraging signs that GDP growth will improve as 2013 progresses.
For all of 2012, the U.S trade gap fell by 3.5%, to $50.4 billion. Specifically, exports of goods were up $66.7 billion from 2011, while exports of services were $632.3 billion, up $26.4 billion from 2011. Meantime, imports of goods were up $67.2 billion from 2011, while imports of services were $437.0 billion, up $9.6 billion from 2011. The narrowing of the deficit was helped by a fall in petroleum imports, which fell to their lowest levels (in volume terms) since 1997. Overall, while the trade deficit shrank in 2012, it grew with China. However, even the trade report with Asia’s largest economy had a silver lining, as it showed that U.S. exports to the Asian powerhouse rose to a record high. The trade deficit with the European Union increased, while the surplus with Brazil grew in 2012.
All in all, the latest trade gap data were an heartening sign for the U.S. economy, and another indication that the dour GDP figure issued last week before the December trade gap data were available may have been overly pessimistic. Our feeling is that the fourth-quarter GDP estimate issued next month will be revised to the upside.