Analysts at Wells Fargo point out that after swelling to its largest gap in 10 years last month, the trade deficit narrowed in January. According to them unexpected move will lift tracking estimates for Q1 GDP, but the imports collapse is worrisome for domestic demand.
Key Quotes:
“The trade gap narrowed by a substantial $8.8 billion in January. To keep that in perspective, it’s useful to consider that in the prior month the trade deficit was as large as it has been at any point since the height of the financial crisis in 2008. Indeed, even after the improvement here in January, the deficit remains larger than it was at any point between 2009 and 2016.”
“Exports increased $1.9 billion, retracing a little less than half of the $4 billion drop in December. Most of the gain came on the goods side. The biggest major category increase was food and beverage exports, which shot up 13.1% in January. Within that category, the big mover was once again soybeans.”
“Tempting though it may be to conclude that this is a China effect, we cannot be sure. In fact, U.S. exports to China fell slightly in January; the big narrowing in the trade deficit with China was entirely a function of shrinking imports from that country.”
“Overall imports (not just from China) declined in every major category, but the two biggest were industrial supplies, which fell 5.0%, and capital goods, which slipped 4.9%.”
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