U.S. Trade Deficit Widens

The U.S. trade deficit -- the measure of how much more the nation imports than exports -- widened in December. This is generally interpreted as bad news. Many had hoped that exports could help to lead the U.S. out of recession, especially since the dollar has been so weak. But does today's news really conflict with that possibility? Yes. No. Maybe.

The Commerce Department reports:

Total December exports of $142.7 billion and imports of $182.9 billion resulted in a goods and services deficit of $40.2 billion, up from $36.4 billion in November, revised.

That's an approximate increase of 10%. At first glance, this seems pretty bad. U.S. exports aren't outpacing imports. Indeed, the Wall Street Journal's Real Time Economics blog concludes:

The widening reflects faster growth in imports than exports at year-end, an unwelcome side effect of the U.S. economic recovery. It also is a reminder that export-led growth, which nations are pursuing as a path out of recession, is easier said than done.

But it's important to realize that there are two variables at play here: exports and imports. And, in fact, the exports news wasn't that bad. They actually increased. The Commerce Department says:

December exports were $4.6 billion more than November exports of $138.1 billion.

So we did see some export growth after all. The reason why the deficit widened was because imports grew by $8.1 billion -- more than the $4.6 billion increase in exports. So foreign nations are buying more U.S. goods and services, but Americans are buying even more goods and services from abroad. That's troubling, because the import growth more than neutralized the export growth, widening the deficit. That additional $8.1 billion in imports could have stimulated the U.S. economy, but Americans chose to buy even more from abroad instead.

As a result, I would interpret this news as disappointing, but not disastrous. Indeed, if you consider that the dollar index has risen 7.5% since November, it might actually be impressive that exports are still growing. It could have been worse. The main reason why exports are expected to do so well is because the dollar has done so badly. If the dollar is doing better, but exports are still growing, albeit at a slow pace, then I think that's hard to complain about.