Trade deficit jumps sharply in December

February 10, 2010

 
WASHINGTON - The U.S. trade deficit surged to a larger-than-expected $40.18 billion in December, the biggest imbalance in 12 months. The wider deficit reflected a rebounding economy that is pushing up demand for oil and other imports.

The Commerce Department said the December deficit was 10.4 percent higher than the November imbalance. It was much larger than the $36 billion deficit that economists had expected with much of the increase coming from a big jump in oil imports.

For December, exports of goods and services rose for an eighth consecutive month, climbing 3.3 percent to $142.70 billion. The increase was led by strong gains in sales of commercial aircraft, industrial machinery and U.S.-made autos and auto parts.

Imports were up 4.8 percent in December to $182.88 billion, led by a 14.8 percent surge in oil imports which rose to the highest level since October 2008.

For all of 2009, the deficit totaled $380.66 billion, the smallest imbalance in eight years, as a deep recession cut into imports. However, economists believe the deficit will rise in 2010 as U.S. demand for imports outpaces U.S. export sales.

"Trade may support the U.S. recovery going forward but only marginally now that domestic demand is once again pulling in imports," Sal Guatieri, senior economist at BMO Capital Markets, said in a research note.

The wider-than-expected trade deficit combined with other disappointing reports will likely reduce overall economic growth in the October-December quarter, analysts said.

The government initially estimated that the gross domestic product was expanding at an annual rate of 5.7 percent in the fourth quarter. But Harm Bandholz, an economist at UniCredit Research, said that he believed that would be reduced to around 5.25 percent when the government releases its updated GDP estimate on Feb. 26.

By country, the deficit with China totaled $226.83 billion in 2009, still the largest imbalance with any nation but down 15.4 percent from the all-time record of $268.04 billion set in 2008.

The deficit with China is expected to resume rising in 2010 as the U.S. economy recovers, triggering rising orders for Chinese manufacturers of shoes, toys and other low-cost items in high demand by American consumers.

Beijing reported that Chinese exports to the world rose by 21 percent in January compared to a year earlier, up from a gain of 17.7 percent in December, according to the latest Chinese customs data.

The Obama administration is pressuring China to allow its currency to rise in value against the dollar, a development that would make U.S. goods cheaper in China and Chinese goods more expensive in America. American manufacturers contend that a major factor in the trade deficit between the two nations is China's policy of undervaluing its currency in relation to the dollar.

The deficit with Canada dropped by 74.2 percent in 2009 to $20.21 billion while the deficit with the European Union fell by 36.8 percent to $60.54 billion.

The December deficit was the largest since the imbalance totaled $41.86 billion in December 2008. The deficit, which hit a nine-year low of $25.81 billion in May, has been rising in recent months as the U.S. economy has been pulling out of the deepest recession since the 1930s and demand for imports rebounds.

The deficit is expected to keep rising in 2010 even though U.S. manufacturers will be benefiting from stronger overseas sales as the global economy rebounds and a weaker dollar makes their products from competitive in foreign markets. The export gains are expected to be outpaced by an even larger rebound in imports.

Last year's decline in the value of the dollar against the euro, the joint currency of 16 European nations, and several other major currencies has helped make American goods more competitive on overseas markets. That will help lift the fortunes of America's beleaguered manufacturing sector.

Caterpillar Inc., the world's largest maker of construction and mining equipment, said last month that it expected its sales will rise 10 percent to 25 percent this year. Caterpillar generates more than 60 percent of its sales overseas and it is forecasting strong growth to come from developing countries including China and India.

Dow Chemical Co., another major U.S. exporter, said that it expected continued improvement in its sales to emerging markets in Asia and Latin America but is less optimistic about markets in the United States and Europe due to expected continued high unemployment.

 

Associated Press