As a result of sluggish global demand and a strong dollar, the U.S. trade deficit increased significantly in October. If the pattern continues, trade may be a drag on economic growth this quarter.
The Tuesday data from the Commerce Department did not alter opinions that the economy had gotten off to a strong start in the fourth quarter, especially in light of recent positive news on the economy, including consumer spending, the labor market, and the services sector.
“A rewidening in the trade balance will mechanically weigh on GDP growth fourth quarter,” said Veronica Clark, an economist at Citigroup in New York. “However, this should be partly offset through strength in domestic demand, particularly in business investment as real capital goods imports have jumped in the last few months.”
To $78.2 billion, the trade imbalance widened by 5.4%. Part of the reason why the trade gap widened for the second consecutive month was a change in the trade of pharmaceutical items, with exports of these goods falling dramatically and imports rising.
“Trade in pharmaceuticals was always notoriously volatile, and it’s only gotten worse with the big international shipments in both directions of COVID vaccines,” said expert Paul Ashworth.
Exports decreased by 0.7% to $256.6 billion, and goods shipments decreased by 2.1% to $176.0 billion, which was the lowest level since March. Exports of industrial supplies decreased, which was primarily due to natural gas and other petroleum products. However, crude oil exports rose by $1.6 billion.
Consumer goods exports decreased, which was mostly due to a $2.2 billion decline in pharmaceutical exports. Exports of food increased, helped by soybeans. Exports of capital goods reached a record high. Travel, transportation, and other business services helped service exports jump $1.8 billion to an all-time high of $80.6 billion.
The Federal Reserve’s quickest rate-increasing cycle since the 1980s as it battles inflation has resulted in the dollar appreciating by more than 11% versus the currencies of the United States’ main trading partners as of the end of December 2021. On a trade-weighted basis, the dollar had increased by 5.9% as of this month compared to the end of 2021.
U.S. manufactured goods are becoming less competitive on international markets as the dollar strengthens. Demand is also being eroded by global central banks’ tightening of monetary policy.
The Institute for Supply Management released surveys this month that indicated manufacturing and service export metrics remained in negative territory in November.
Wall Street stocks were trading at a lower level. In relation to a currency basket, the dollar weakened. Treasury prices increased.
Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.