US trade deficit shrank in November on falling imports

Shipping containers are seen stacked on a docked cargo ship as a passenger airplane takes off from Newark Airport, in Port Elizabeth, New Jersey, U.S., July 12, 2023. REUTERS/Mike Segar/File photo

WASHINGTON  —The U.S. trade deficit narrowed in November as imports of consumer goods fell to a one-year low amid slowing domestic demand, a trend that, if it persists in December, could result in trade having no impact on economic growth in the fourth quarter.

The report from the Commerce Department on Tuesday also showed exports declined in November amid cooling demand overseas. Demand is slowing both in the United States and abroad following hefty interest rate increases by global central banks since 2022 to tackle rampant inflation.

The Federal Reserve’s rate hiking cycle has likely ended, with financial markets expecting the U.S. central bank to start lowering borrowing costs as soon as March.

READ: BofA sees four rate cuts from Fed next year

“The weakness of both exports and imports in November suggests that weaker growth overseas is now being matched by a softening in domestic demand too,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

The trade deficit contracted 2 percent to $63.2 billion, the Commerce Department’s Census Bureau said. Data for October was revised slightly to show the trade gap widening to $64.5 billion instead of the previously reported $64.3 billion.

Economists polled by Reuters had forecast the trade deficit would rise to $65 billion in November.

Imports declined 1.9 percent, or $6.1 billion, to $316.9 billion. Goods imports dropped 2.3 percent to $257.4 billion.

Imports of consumer goods fell $4.1 billion to the lowest level since November 2022, led by a $1.9 billion decrease in cell phones and other household goods.

There were also declines in imports of pharmaceutical preparations as well as industrial supplies and materials, which include petroleum products. But crude oil imports increased $1.5 billion. Capital goods decreased $0.7 billion, pulled down by declines in drilling and oilfield equipment, suggesting weak business spending on equipment persisted in the fourth quarter.

Exports decreased 1.9 percent, or $4.8 billion, to $253.7 billion. Goods exports dropped $5.4 billion to $168.0 billion, with industrial supplies and materials falling $3.6 billion. That reflected declines in shipments of non-monetary gold, crude oil, and organic chemicals.

Exports of motor vehicles, parts and engines also fell, as did those of consumer goods, which dropped to the lowest level since December 2022. But exports of capital goods were the highest on record.

Goods trade gap shrinks

The goods trade deficit narrowed 0.6 percent to $89.4 billion in November. When adjusted for inflation, the goods trade deficit contracted $2.3 billion, or 2.7 percent, to $84.8 billion. The so-called real goods trade deficit is so far averaging $86.0 billion in the fourth quarter, little changed from the third-quarter’s average.

Trade was neutral to the economy’s 4.9 percent growth rate in the third quarter. It has not contributed to growth in gross domestic product for two straight quarters. Fourth-quarter growth estimates are as high as a 2.5-percent annualized pace.

READ: US economy grew 5.2% in Q3; higher interest rates sapping momentum

Growth in the fourth quarter is expected to be curbed by a smaller pace of inventory accumulation, as businesses anticipate slower demand this year following 525 basis points worth of interest rate hikes by the Fed since March 2022.

The government is scheduled to publish its snapshot of GDP growth for the October-December period later this month.

Economists saw limited disruptions to trade flows from disruptions in the Red Sea.

“Even if shipping disruptions in the Red Sea prove longer-lasting, the impact to U.S. trade is likely to be modest outside of the run-up in shipping prices,” said Matthew Martin, a U.S. economist at Oxford Economics. “Drought-related delays to shipping through the Panama Canal is probably the bigger downside risk.”

Imports of services fell $0.1 billion to $59.6 billion as an increase in travel was more than offset by a decline in transport.

Services exports increased $0.6 billion to a record high of $85.7 billion, lifted by travel, other business services, as well as transport and government goods and services. The services surplus of $26.2 billion was the highest since March 2018.