U.S. Trade Deficit Narrows in December; Q4 Drag from Trade Likely Larger

• Trade deficit decreases to $66.6 billion in December.

• Exports grow 3.4%; Imports rise 1.5%.

• This report suggests net exports will be a larger drag in Q4 than the 1.5 percentage points estimated in last week's GDP report.

The U.S. trade deficit in goods and services narrowed to $66.6 billion in December from an upwardly-revised $69.0 billion in November (was $68.1 billion). October was also revised higher to $63.8 billion from $63.1 billion. The Action Economics Forecast Survey anticipated $65.7 billion. Given the larger than expected deficit and upward revisions to previous months, net exports are likely to be a larger drag in Q4 than the 1.5 percentage points estimated in last week's GDP report.

Exports gained 3.4% (-10.2% year-over-year), while imports increased 1.5% (-0.2% y/y). With these monthly gains, exports remain 9.3% below February levels while imports are now 3.8% above (February 2020 was not the peak in both exports and imports, those occurred in 2018).

The nominal deficit in goods trade decreased to $83.2 billion in December from $86.1 billion. The advanced trade data reported last week had a $82.5 billion goods deficit. Exports of goods rose 4.6% (-2.7% y/y) with all major categories showing gains. Imports of goods grew 1.4% (5.0% y/y) driven by price-fueled 10.6% jump in petroleum exports (-37.1% y/y). Petroleum import volumes declined 0.7% in December (-17.0% y/y). Three of the five major categories of goods imports increased, while two declined. The real (inflation-adjusted) goods trade deficit decreased to $94.8 billion (chain-weighted 2012$) in December from an upwardly-revised $97.2 billion in November. October's real goods deficit was also revised higher.

The surplus on trade in services declined to $17.5 billion from a downwardly-revised $18 0 billion (was $18.2 billion). The value of services exports grew 0.5% (-23.5% y/y) led by a 5.5% gain in travel (-70.9%). Imports of services increased 1.8% (-21.4% y/y) also driven by travel (22.0% month-on-month; -73.1% y/y). Services exports are still down 20.7% since February, while imports have fallen by 19.7% (the peaks in services trade occurred in 2019).

The politically-sensitive goods trade deficit with China narrowed to $28.1 billion in December from $30.4 billion. Exports to China grew 6.3% (66.9% y/y) while imports declined 3.5% (+24.5% y/y). Chinese imports are still three times larger than exports. The trade deficit with the European Union widened to $19.2 billion while the imbalance with Japan narrowed to -$5.5 billion.

The international trade data, including relevant data on oil prices, can be found in Haver's USECON database. Detailed figures on international trade are available in the USINT database. The expectations figures are from the Action Economics Forecast Survey, which is carried in AS1REPNA.