Trade deficit temporarily narrows

January 9, 2024

The U.S. international trade deficit narrowed by 2% in November, a miss from expectations of a widening trade deficit. The deficit has fallen 18.4% year-over-year. That marks the first narrowing in the deficit since the summer as both exports and imports fell.

Part of the shortfall in expectations was the mismatch between the advance goods deficit report and the goods deficit reported in the international trade report. The goods deficit widened in the former, but narrowed in the latter. They tend to move in the same direction and magnitude, but periodically differ due to the fact that the advance goods deficit is calculated using customs data, while the international trade report is calculated using a balance of payments method. The balance of payments method is used for GDP.

Imports fell by 1.9% on weakness in consumer goods. Cell phones and other household goods were particularly weak, followed by pharmaceuticals and toys/games. Growth in even the largest consumer categories was tepid at best; however, those increases were in boats and motors, camping gear and footwear as consumers gear up for the spring and summer. Automotive imports were essentially flat as increases in trucks and buses offset some of the decreases in automotive parts. Capital goods and industrial supplies were all weak related to the petroleum industry. Much of the ramping up in drilling has already happened. Imports of services were essentially flat; travel was up but transportation was down.

Both wholesalers and retailers drained inventories during the month, making imports weaker still. The exception was motor vehicles and parts dealers, who are still building inventories in the wake of shortages.

Exports fell 1.9% on industrial supplies, split fairly evenly between nonmonetary gold (gold purchased by foreign official agencies by private dealers), crude oil and chemicals. Automotive exports were also weak across the board. Consumer goods were more mixed; expensive items like artwork, diamonds and jewelry all showed the largest dips while cell phones increased. On net, consumer goods exports fell. Exports of services were the only strong points in the November report, with travel, transport and business services all showing increases.

Trade deficits with the E.U. and China both decreased as imports fell from these areas. Exports increased for the E.U. but decreased for China. The only country to show a significant increase in the trade deficit in November was Mexico.

The data on international trade are not adjusted for inflation. Import prices fell for the second month in a row by 0.4%, while export prices fell again by 0.9%. That means that in real terms, imports fell by more than exports, and will show a smaller deficit in the GDP data for November.