U.S. trade gap widens in December; deficit highest on record in 2022

© Reuters. FILE PHOTO: Stacked containers are shown as ships unload their cargo at the Port of Los Angeles in Los Angeles, California, U.S. November 22, 2021. REUTERS/Mike Blake/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. trade deficit widened in December, reversing half of the prior month's sharp contraction, as imports rebounded and exports of goods dropped to a 10-month low amid cooling global demand and declining crude oil prices.

The report from the Commerce Department on Tuesday also showed the trade gap widening to a record high in 2022. With the deficit expected to increase again in January, economists anticipated that trade would probably not provide support to the economy this quarter after contributing to gross domestic product growth for three straight quarters.

"The trade winds have shifted and are no longer blowing as strongly in the direction of positive economic growth," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The economy isn't floundering, but it is unlikely to pick up much speed looking at today's trade deficit data."

The trade deficit increased 10.5% to $67.4 billion. The trade gap contracted 21.1% in November to $61.0 billion. The numbers are not adjusted for inflation. When adjusted for inflation, the so-called real goods trade gap widened to $98.6 billion from $96.1 billion in November.

The trade numbers were close to the assumptions made by the Commerce Department's Bureau of Economic Analysis in its advance fourth-quarter GDP estimate published last month. A smaller trade deficit was one of the contributors to the economy's 2.9% annualized growth pace last quarter.

The trade deficit widened to a record $948.1 billion in 2022 from $845.0 billion in 2021. It represented 3.7% of GDP, up from 3.6% in 2021. Exports increased $453.1 billion to $3 trillion. Imports shot up $556.1 billion to $4 trillion.

The goods trade deficit with Canada swelled $31.6 billion to $81.6 billion in 2022. The goods trade gap with China widened $29.4 billion to $382.9 billion.

Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

IMPORTS REBOUND

Imports increased 1.3% to $317.6 billion in December, with goods rising 1.8% to $258.8 billion. They were boosted by imports of consumer goods, which jumped $4.1 billion, reflecting increases in cell phones as supply from China improved following the reopening of the country after shutdowns to contain COVID-19 outbreaks.

There were also increases in imports of other household goods. Imports of motor vehicles, parts and engines rose $2.9 billion. But imports of industrial supplies and materials, which include crude oil, fell $2.7 billion to $59.6 billion, the lowest level since October 2021. Real imports of industrial supplies were the lowest since May 2021.

Oil prices averaged $75.24 per barrel in December, the cheapest since January, from $79.86 in November.

Imports of services fell $0.3 billion to $58.8 billion, pulled down by travel and transportation. But charges for the use of intellectual property increased $0.2 billion.

Exports fell 0.9% to $250.2 billion. Goods shipments dropped 1.7% to $168.1 billion, the lowest since in February, mostly reflecting the decline in crude oil prices.

Exports of industrial supplies and materials dropped $3.1 billion, with shipments of crude oil falling $0.8 billion. There were also decreases in exports of other petroleum products.

Economists said the decline in both imports and exports of industrial supplies and materials confirmed the recent weakness in manufacturing, highlighted by declines in production and business sentiment.

Higher interest rates as the Federal Reserve fights inflation, and a shift in spending back to services from goods are also undercutting manufacturing.

Real exports of petroleum were the highest since February 2020 as were those of motor vehicles, parts and engines. Consumer goods exports fell $1.0 billion, but food exports rose $0.7 billion.

The U.S. dollar's past appreciation against the currencies of the United States' main trade partners has made American-made goods expensive on international markets. Tighter monetary policy by global central banks is also eroding demand abroad.

"Decreased growth abroad will likely continue to weigh on demand for U.S. exports," said Shannon Seery, an economist at Wells Fargo (NYSE:WFC) in New York. "At the same time, demand for consumer durables is slowing after being pulled forward during the pandemic, [that] and a gradual slowdown in capex investment are weighing on U.S. imports from the rest of the world."

Exports of services rose $0.7 billion to a record $82.0 billion, lifted by travel, transportation as well as other business services. The services surplus was the highest since December 2019. China's reopening could support services exports.

"Services trade will be important to watch over the coming months," said Veronica Clark, an economist at Citigroup (NYSE:C) in New York. "China reopening could entail a substantial return of Chinese tourism and students to the U.S., which would be reflected in stronger services exports."