Our estimate is consistent with the governments assumption in Q4 GDP. A smaller deficit leaves an upward revision to Q4 growth.
A moderate rise in the deficit after the three months of narrowing from a record -$68.5 bln in August.
December estimate is -7% below the year ago level.
Expect imports to rise 1% partly off a 5% rise in petroleum import prices.
A modest rise in exports leaves a fifth consecutive record high.
China's deficit slipped to -$22.9 bln in November -- 39% of the total.
Big Picture
August topped the record July 2006 deficit as lower energy prices helped to leave the November deficit -15% lower and the lowest in over a year. The rapid drop is tied to oil prices which added a strong boost to Q4 GDP. The swing of petroleum import prices mask the weakening domestic demand for foreign goods as the weaker dollar and economy slowly reduce demand. Exports feed a stronger world economy. From a year ago exports have risen 13% as imports have risen just 5%. Import growth carries a larger effect on the deficit than exports given that imports are more than 50% larger. China commanded a record 41% of the entire deficit in October. The massive size of the deficit is eyed for effects on the dollar and interest rates. The trade deficit demands an equal but opposite investment inflow from abroad as the record size urges caution regarding foreign demand. But foreign demand remains exceedingly strong given the return of petrodollars and as Asian export markets protect strong trade flows with dollar buying.
The trade report is most widely watched for trends in the overall trade
balance. But trends in both exports and imports of goods and services bear
watching as well. The export data in particular are important to watch for
indications that a strengthening competitive position at home and/or
strengthening economies overseas are boosting U.S. growth. Imports provide an
indication of domestic demand, but given the severe lag of this report relative
to other consumption indicators, it is not particularly valuable for this
purpose.
The volatility in the monthly trade balance can play an important role in
GDP forecasts. Net exports are a relatively volatile component of GDP, and the
trade report provides the only early clues to the net export performance each
quarter.
