Trade Deficit Widens due to Unexpected Surge in Imports

I am tracking the U.S. International Trade of Goods and Services indicator for my Business and Economics Reporting class. Here is the report for January’s numbers.

The U.S. trade deficit widened by an unexpected 15.1 percent to $46.3 billion in January due to a 5.2 percent jump in imports. Economists surveyed expected a gap of $41.5 billion.

Higher purchases of capital goods, industrial supplies and auto pushed imports up to $214.1 billion. Capital goods imports of industrial machines and engines increased by 16.2 percent, a sign that companies are beginning to invest.

“As the economy recovers, one element of growth is that consumption will increase so we would expect imports to be higher,” said Nathaniel Karp, chief U.S. economist for BBVA Group. “[International trade] is one of the indicators that are spelling good news.”

Imports of industrial supplies and materials increased by 8 percent to $59.6 billion, led by crude and fuel oil purchases. Gold imports, the savings method of choice in uncertain times, fell by 52.7 percent to $982 million.

Higher oil prices played a smaller role compared to December. Excluding petroleum, the deficit still widened by $5 billion.

“We’ve had high oil prices contribute to the trade gap in December, but our figures show that it remained rather flat in January,” said Jay Bryson, global economist for Wells Fargo Securities. “Of course, we’re seeing price hikes now, but those will be reflected in the February and March numbers.”

Instead, rising oil prices has resulted in higher purchases of newer and more fuel-efficient cars, to the benefit of car manufacturers locally and abroad. Auto imports increased by 14 percent to $21.7 billion in auto imports while auto exports increased by 13.4 percent to $10.9 billion, which is the highest since February 2008.

Total exports increased by 2.6 percent to a record-level $167.7 billion, which is on track to meet Obama’s goals of doubling it by 2015. Industrial supplies exports increased by 10.2 percent, led by fuel oil, petroleum products and raw cotton.

“Exports are seeing a continual increase since last year, and it is reaching numbers that are higher than before the financial crisis,” said Karp, who mentioned that a weaker dollar was a factor. “We will probably see the growth in exports narrowing the trade gap if not for higher oil, food and commodity prices.”

Overall, economists expect a further widening of the gap over the course of this year.

“If this expansion remains intact, we expect that exports will remain strong but imports will also increase,” said Bryson.

Revised on March 14, 2011.

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