U.S. trade deficit widens in November, net trade to weigh on Q4 real GDP growth

As expected, the U.S. trade deficit broadened in November to USD 45.2 billion from October’s USD 42.4 billion. The widening deficit was consistent with the consensus expectation of a USD 45.4 billion deficit. Nominal exports dropped 0.2 percent on the month, driven by 4.1 percent fall in capital goods and 2.4 percent decline in automotive exports.

This was countered partly by growth in industrial supplies, which rose 4.3 percent and consumer goods that grew 3 percent. In the meantime, imports were up 1.1 percent, led by 6 percent growth in industrial supplies. In terms of volume, real goods exports dropped 0.9 percent sequentially, whereas real goods imports were up 1.2 percent.

Given two consecutive months of declines in exports and rises in imports, net-trade is expected to weigh on the fourth quarter real GDP growth after contributing robustly in the prior quarter, stated TD Economics in a research report. International trade has become a significant political issue. Meanwhile, the USD has appreciated more than 3 percent on a trade-weighted basis, making imports cheaper and exports expensive for foreign buyers.

It is significant to observe movements in the dollar, particularly as a source of disinflationary pressure in an environment when price growth continues to be below target.

“At a minimum, given continued strength in U.S. domestic demand and a strong dollar, net exports are likely to continue to pose at least a modest drag on economic growth over the next year”, added TD Economics.

At 06:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 3.84921. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex