US: Trade deficit continued to increase in December on consumer strength - Wells Fargo

According to analysts from Wells Fargo, the deterioration in the trade deficit in December represents a sign of good times for the U.S. economy, particularly the consumer. 

Key Quotes: 

“The U.S. trade deficit in goods and services increased to a higher-than expected $53.1 billion in the last month of 2017 from a slightly downwardly revised deficit of $50.4 billion in November. Most of the difference in December was an increase in the deficit of goods, which went up $2.6 billion while there was a decline of $0.1 billion in the surplus for services.”

“Exports of goods increased $3.4 billion while imports of goods increased $6.0 billion during December. In real terms, exports of goods increased $3.3 billion while imports of goods increased $5.3 billion during the month. 

“The biggest component of the increase in the goods deficit was an increase of $1.1 billion in automotive vehicles, parts and engines and a $3.2 billion increase in consumer goods imports.”

“For many decades, the U.S. economy has been a net importer, which means that as the economy improves the country’s trade deficit also increases. Although there are negative implications about a deterioration in the trade balance, i.e., a higher current account deficit which needs to be financed by higher capital inflows from the rest of the world, the short to medium term implications are positive.”

“Consumers who are feeling positive about the future tend to consume at a faster pace, propping up economic growth as well as import growth. But it is not only consumers who tend to overspend in good times. Tax reform is probably going to put further pressure on the trade and current account deficit as firms invest in more
capital equipment to increase productive capacity.”