• The trade deficit widened for the first time in three months, rising to $48.9 billion in December, somewhat higher than market expectations of $48.2 billion. November’s figure was revised up to $43.7 billion (prev: $43.1 billion).
  • Goods exports rose by 0.8% month-on-month, as industrial supplies and materials saw a big bounce back from a weak November (Dec: +3.8%; Nov: -0.4%). On the other hand, consumer and automotive goods saw a sharp decline in December (consumer goods: -3.6%; automotive: -7.8%). In real terms, exports increased by 1% in December.
  • Following three months of contractions, good imports surged in December, rising by 2.7% on the month. Barring automotive imports, all other product categories saw increases in December, with the largest contribution coming from industrial supplies and goods which spiked by nearly 10%. An important reason for the increase was a substantial pickup in imports of energy-related petroleum. Stripping out price effects, imports increased by 2.6% in December.
  • Services exports and imports both saw gains in December. Exports rose by 0.4% and imports by 0.8% on the month.

Key Implications

  • Just as it was getting worrying, imports bounced back in a big way in December. The strength was particularly notable in industrial supplies, which surged after contracting for the previous four months. While this rebound doesn’t make up for the drop in imports of these products over the course of 2019, it does, however, show some sign of life in the U.S. industrial sector.
  • The phase one trade deal should imply a better outlook for U.S. exports and imports in 2020, but we might have to wait some time longer before we see it in the data. With the novel coronavirus still posing a dangerous threat, Chinese production and demand will likely slump in the early parts of this year. Accordingly, it has been reported that China is hoping for flexibility on its commitments outlined in the phase one trade deal. Specifically, the pledge to increase it’s imports of U.S. goods and services by $200 billion by 2021. It was unlikely that China was ever going to meet this target, but in the face of the virus outbreak, the probability moves even closer to zero.

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