US trade deficit narrows as imports slump

Although the trade deficit narrowed to an eight-month low of $42.3bn in November, from $44.6bn, the decline was due to decline in imports at a faster pace than exports, which is hardly a positive sign.

 Exports fell by 0.9% m/m in nominal terms and real goods exports fell by 1.1% m/m. Imports contracted by 1.7% m/m in nominal terms and 1.5% m/m in real terms. Looking at the details, the decline in imports was principally due to a 5.7% m/m slump in consumer goods imports that, again, is not very encouraging as far as the outlook for domestic demand is concerned.

 As it stands now, thanks to revisions to earlier months, real exports apparently contracted by 7.0% annualised in the fourth quarter, while real imports contracted by a more modest 2.0%. The upshot is that net external demand will subtract about 0.5% points from overall GDP growth, which is about average for last year.

 Even though the pace of dollar appreciation has slowed quite sharply over the past six months, that drag will persist for some time. As a result of a slightly bigger than originally expect hit from net trade, and also in light of the unexpectedly weak motor vehicle sales figures for December, released yesterday.

Elsewhere, the ADP survey suggests that private payroll employment growth accelerated to 257,000 in December, from 211,000 the month before, but its relationship with the official non-farm payroll figures is fairly tenuous. The pick-up may just reflect the acceleration in the official figures in October and November.

"We see no reason to change our forecast that non-farm payrolls increased by a more modest 210,000, particularly in light of the weak employment index in the ISM manufacturing survey in December", says Capital Economics in a research note.