America’s goods and services trade deficit decreased 3.21 percent in nominal terms on month in December – even though inflation appears to be rising and the fourth quarter real deficit rose at its fastest rate (14.82 percent) since early 2010. In fact, in pre-inflation terms, the quarterly deficit was up only 12.95 percent sequentially. In addition, despite a slowdown in U.S. economic growth, the overall trade deficit edged up on-year by 0.38 percent, to $500.25 billion. In 2016, both combined and goods imports both recorded their first consecutive annual decreases since the current Census historical series begins (1960). In addition, both categories of exports fell in 2016 for the second straight year for the first time since 2002.
December combined goods and services exports rose to their highest level since January, 2015, but total imports hit a post-March, 2015 high. Fueling much of the December sequential improvement was a double-digit drop in the huge and chronic manufacturing trade deficit, and the biggest all-time fall in the volatile high tech goods shortfall (71.78 percent) that was generated largely by the sector’s best-ever monthly exports ($32.18 billion). The goods deficit was down 1.64 percent on year, but the long-time surplus the nation has run in services trade decreased by 5.48 percent – its first such fall since 2003.
Trade with countries possibly targeted by President Trump for new negotiations or unilateral U.S. tariffs turned in a mixed 2016 performance, as American goods deficits rose slightly with Mexico and Japan, and fell with China and Germany. But all these imbalances remained at lofty levels historically. The monthly shortfall with free trade partner Korea, however, hit its lowest level since February, 2014. Nonetheless, the December figures revealed a dramatic rise in the trade drag on America’s sluggish economic recovery.
Most troubling, as of year-end 2016, the Made in Washington deficit had reduced cumulative inflation-adjusted growth during the recovery by 20.56 percent, or $434.78 billion.
Here are selected highlights of the latest monthly (December) and full-year trade balance figures released this morning by the Census Bureau:
>A monthly 3.21 percent drop in the December goods and services trade deficit led off a series of surprises produced by the new monthly U.S. trade figures – which also presented the first full-year results for 2016.
>The December sequential decrease – to $44.26 billion from an upwardly revised $45.73 billion November level – yielded a rise in the nominal fourth quarter 2016 trade gap of 12.95 percent. That’s less than the 14.82 percent surge in the real trade deficit in that fourth quarter reported in the latest gross domestic product figures – even though inflation in the United States appears to be heating up.
>Also puzzling in the new trade figures – the annual increase of the combined goods and services shortfall (albeit by only 0.38 percent, to $500.25 billion) despite a slowing overall economy.
>The new records and multi-year highs and lows revealed in this morning’s trade figures start on the import side. Both combined imports and goods imports fell in 2016 for the second straight year. Such declines have not been seen since 1960 – when the Census Bureau’s current historical statistics series begins.
>The former reached $2.712 trillion in 2016 – the lowest such level since 2011 ($2.676 trillion). The latter reached $2.210 trillion – also the lowest such level since that year ($2.240 trillion).
>Combined exports also fell for the second straight year in 2016 – by 2.34 percent – and totaled $2.209 trillion. The last time such a back-to-back decline was experienced was in 2002. And the 2016 level was the lowest since 2011 ($2.127 trillion).
>Goods exports on an annual basis fell consecutively for the first time since 2011 as well. In 2016, they were off by 3.31 percent, and hit $1.460 trillion. That’s the lowest such level since 2011 as well ($1.499 trillion).
>Meanwhile, the slight deterioration in the annual overall 2016 trade deficit resulted largely from an unusual source – the first drop in the services trade surplus (by 5.48 percent, to $247.82 billion) since 2003.
>In 2016, services exports dipped by 0.17 percent, to $749.58 billion. But the drop was the sector’s first since 2009. Services imports, meanwhile, hit an all-time high of $501.75 billion – up 2.68 percent from 2015 levels.
>The goods deficit in 2016 fell for the first time since 2013 – by 1.64 percent, to $750.07 billion.
>Total exports increased in December on a monthly basis by 2.71 percent, from a downwardly adjusted $185.65 billion to $190.69 billion. That’s the best total since January, 2015’s $191.97 billion.
>Total imports rose more slowly – by 1.54 percent, to $234.95 billion from an upwardly adjusted $231.38 billion. But that total was the highest since March, 2015’s $238.64 billion.
>Fueling much of the December monthly improvement was the biggest monthly drop in America’s volatile high tech goods deficit on record – a 71.78 percent plunge from $13.53 billion to $3.82 billion.
>High tech goods exports shot up sequentially by 15.80 percent to a monthly all-time high of $32.18 billion. Imports were off by 12.87 billion on month, to just over $36 billion.
>The broader manufacturing sector enjoyed a good December, too. The monthly deficit fell from a record $80.75 billion in November to $69.52 billion – an improvement of 13.91 percent.
>Even better, the manufacturing trade gap shrank because imports fell on month in December by 4.71 percent and exports advanced by 3.91 percent.
>On year, however, manufacturing’s trade performance deteriorated again. The annual trade deficit rose by another 3.25 percent to $861.82 billion – its latest annual record.
>Manufacturing exports declined by 4.71 percent, to $1.051 trillion, but imports were off only 1.71 percent, to $1.913 trillion.
>U.S. trade partners who have attracted the ire of President Trump could take some solace from this morning’s trade figures.
>The longstanding and enormous U.S. goods trade deficit with China fell by 5.48 percent on year, from $367.13 billion to $347.04 billion. Both U.S. merchandise imports from and exports to the still strongly growing Chinese economy decreased on annual basis – by 4.23 percent and 0.26 percent, respectively.
>The merchandise trade shortfall with Germany – whose currency policies, like China’s, have been criticized by the Trump administration – was down as well on year, by an even greater 13.34 percent, from $74.85 billion to $64.87 billion. U.S. goods exports to Germany slipped by 1.22 percent but goods imports sank by 8.49 percent.
>>The decline in the U.S. goods trade deficit with Korea, with which a free trade agreement went into effect in 2012, was 2.29 percent, from $28.31 billion to $27.67 billion. This total was still the second highest on record. Both U.S. goods exports to and imports from Korea decreased – by 2.71 percent and 2.55 percent, respectively.
>Some of the improvement in Korea trade resulted from the nearly 50 percent monthly plummet in the December goods gap. The $1.20 billion figure was the lowest since February, 2014’s $1.08 billion.
>Yet the merchandise trade gap with Mexico rose – by 4.17 percent, from $60.66 billion to $63.19 billion. U.S. goods exports – many of which are intermediate goods that are re-imported as final products – inched down by 2.03 percent while imports were down by only 0.76 percent.
>America’s merchandise trade deficit with Japan climbed fractionally, to $68.94 billion in 2016, as goods exports advanced by 1.32 percent and the much greater volume of goods imports grew by 0.64 percent.
>Unfortunately, the new trade data showed that trade’s drag on the U.S. economy increased significantly in 2016. In particular, the inflation-adjusted increase in the Made in Washington deficit (the non-oil goods deficit) since the current recovery began in mid-2009 has cut cumulative inflation-adjusted growth during this sluggish expansion by fully 20.56 percent. That translates into $434.78 billion of real output lost because of America’s trade performance in those areas most heavily affected by trade deals and related policies.