U.S. nominal goods trade deficit broadens in January, net exports likely to be larger drag on GDP growth

U.S. nominal goods trade deficit widens modestly in January. The advance estimate of the trade in goods saw nominal goods deficit widening to USD 74.4 billion. This is widely consistent with the expected deficit of USD 75 billion.

Delving into details, nominal exports dropped 2.7 percent sequentially, after two consecutive months of strong rises. This was driven by widespread declines throughout most categories, with capital goods exports falling 5.4 percent on the months. However, exports of consumer goods and autos rose on the month. Exports growth is expected to remain supported in months ahead amidst buoyant external demand conditions, noted Barclays in a research report.

Meanwhile, total imports dropped modestly by 0.4 percent sequentially, led by a decline in capital goods and consumer goods imports. This marks the first drop in imports in four months. But given solid consumer confidence and a high consumption-to-income ratio, import growth is expected to rebound in months ahead.

Wholesale inventories rose 0.7 percent sequentially and retail inventories recorded a strong rise of 0.8 percent. The wider trade deficit suggests a larger drag from the net exports component on the overall economic growth. But the inventories side of the report was stronger than estimated and suggests a higher contribution from the inventories subcomponent to GDP growth.

“Taken together, the trade and inventory data boosted our Q1 GDP tracking estimate by one-tenth, to 2.0 percent, after rounding”, added Barclays.

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