Trade: Increase in Imports Widens Deficit

The trade deficit widened in January to a seasonally adjusted $68.2 billion, from a revised $67 billion in December — an increase of 1.8%. The surge in household demand for goods following the onset of the pandemic is the main driving force of the larger deficit in trade. The U.S. economy has bounced back faster than most of its trading partners, resulting in imports outpacing exports. The trade deficit is also widening because depressed global demand continues to hurt U.S. export growth. Widespread vaccinations this year will result in a slight shift in household consumption away from goods and toward services, and a gradual normalization of activity in the services sector.

Pandemic-induced demand by U.S. households fueled imports. Total imports rose 1.2% in January, with imports of goods modestly outpacing imports of services. The former were driven higher by inbound shipments of consumer goods. Booming consumer spending and lean levels of retail inventories indicate that the strength in consumer imports will continue.

Exports of consumer goods will gain momentum as the world economy continues to improve this year. Exports rose 1% in January, with industrial supplies and capital goods notching the strongest gains. The trade balance in services swung to a surplus for the first time since June, as exports outpaced imports. Still, services exports continue to struggle amid restrictions related to COVID-19. Total exports remain well below their prepandemic level.

Sources: Department of Commerce, Trade Data

Source: kiplinger.com