October’s trade deficit at $42.6 billion came in by slightly more than the expected reading of a $42.0 billion deficit. This was the result of a 1.3% rise in imports against a 1.8% decrease in exports. Annually, the change in exports is now 0.4% lower, while imports were 0.8% higher. Meanwhile, the nonpetroleum deficit jumped to $56.1 billion in October from $50.7 billion in September. The non–seasonally-adjusted volume of oil imports was much lower in October at 226.8 million barrels after 235.9 million in September. Though the unit price of imported crude oil rose by 2.5% in October after a 0.9% fall in September. Total petroleum exports decreased by 1.9% in the month.
Beneath the headline figures, the bulk of this month’s decrease in goods exports was largely the result of a $1.4 billion fall in exports of food, feeds, and beverages (largely soybeans) and industrial supplies and materials ($1.0 billion). The $2.8 billion increase in goods imports, meanwhile, reflected an increase in consumer goods ($2.4 billion), capital goods ($1.1 billion), and automotive vehicles, parts and engines ($0.7 billion).
The deficit provided a nice tailwind to economic growth during the third quarter, adding 87 basis points to the 3.2% increase in output. Much of the improvement in September was due to a sharp increase in soybean exports, which was due to weak harvests in South America. Unfortunately, this improvement in the third quarter seems unlikely to continue into the fourth quarter. Not only has the dollar strengthened since the election and is expected to remain strong as the Fed raise interest rates, but demand in the U.S. is improving at a relatively more rapid pace than its other major trading partners. Furthermore, for many surplus nations (such as China), capital flight remains a significant problem, with the U.S. continuing to be the destination of choice. Looking further ahead, protectionist measures, if implemented, would start to see trade flows slowing. While this might achieve a better trade deficit, it would also be damaging for aggregate growth, particularly if met with a similar trade response from others.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.