This morning, the Department of Commerce released its latest international trade gap figures and to nobody’s surprise the data showed a sharp increase in the U.S. trade deficit. Specifically, the trade deficit in goods and services increased to $52.6 billion in January from $50.4 billion during the final month of 2011. The trade-deficit figure for December was revised upward from $48.8 billion.
There were a few factors that contributed to the record high deficit, most notably the higher cost of oil. Crude oil prices have been on a steady ascent, as tensions in Syria, Egypt, and most notably Iran, threaten the supply of oil available for the industrial producing nations, particularly the U.S. and China. Too, a stronger U.S. dollar increased the purchasing power of the U.S. consumer, which resulted in more demand for the less expensive products produced overseas. In fact, imports rose 2.1%, to a record $233.4 billion, with most of the goods coming from China. The total amount of goods imported reached its highest level since mid-2008, the period just prior to the global financial crisis and recession.
The surging imports significantly outpaced the rate of exports, which also grew at a healthy pace of 1.4%, to $180.8 billion, in January. Specifically, overseas shipments of automobiles and capital goods hit record highs in the first month of this year. The overseas demand came from Mexico and Japan, which offset slumping demand from the European Union and China. The decline in sales to the latter two regions is not surprising, as the euro zone is suffering from the sovereign-debt problems of a few of its members and is staring at another recession, if it is not already in one, while the Central Bank of China in Beijing recently cut its 2012 growth estimates for the Asian powerhouse.
All in all, it was a very disheartening report and raises a few concerns going forward. If oil prices remain at elevated levels, which in our opinion would reduce disposal income and the purchasing power of the consumer, and demand from the euro zone and China were to continue to erode, it could very well hurt U.S. manufacturing activity in the months to come. Such a scenario would make it harder for the U.S. economy to maintain its current pace of growth, in our opinion.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.