U.S. Trade Deficit Widened in November

• The US trade deficit widened to a larger than expected $48.7 billion in November 2012 from October’s $42.1 billion (previously reported as $42.2 billion) shortfall. Market expectations were for a much smaller $41.3 billion deficit in November.
• Exports rose by $1.7 billion (1.0%) following an outsized 3.5% drop in October; however, this was more than offset by an $8.4 billion (3.8%) jump in imports that more than retraced a 2.1% drop in the previous month.
• Excluding the effect of prices, the real trade deficit (in chained 2005 dollars, Census basis) widened to $51.9 billion from $46.0 billion in October because a 5.5% surge in imports outpaced a solid, but modest, 2.2% gain in exports.
• The rebound in import volumes in November provided some encouragement that outsized weakness in October reflected disruptions from Hurricane Sandy rather than an underlying deterioration in domestic demand; however, with exports posting a much smaller rebound, the monthly trade data to date are pointing to a notably larger drag from net trade on fourth-quarter 2012 GDP growth than the 0.1 percentage point that we had previously expected. Consistent with the gain in imports, indicators of domestic demand have remained respectable, and a somewhat stronger than expected rise in wholesale inventories in November, reported yesterday, suggested that the slowing in the pace of fourth-quarter 2012 inventory building may be smaller than previously feared. With that said, today’s report, on its own, still points to some downside risk to our forecast for GDP to grow at a 1.4% rate in the fourth quarter of 2012.

The US trade deficit widened to a larger than expected $48.7 billion in November 2012. This marked a relatively sharp deterioration following a $42.1 billion shortfall in October and marked the largest deficit since April 2012. Exports rose by 1.0%; however, this was more than offset by an outsized 3.8% jump in imports. The gain in exports was boosted by a 6.4% jump in auto exports and a 2.2% increase in capital goods exports that offset weakness in Food (-3.1%) and other merchandise (-3.2%) exports. The rise in imports reflected a relatively broad-based rebound, led by rising imports of motor vehicles (6.3%) and consumer goods (11.2%), following broad-based declines in October. The strengthening in both exports and imports in November may have reflected an easing in disruptions caused by Hurricane Sandy at ports in the northeast that likely were at least in part responsible for the October decline.

Excluding the effect of prices, the real trade deficit (in chained 2005 dollars, Census basis) widened to $51.9 billion from $46.0 billion in October because a 5.5% surge in imports outpaced a solid, but modest, 2.2% gain in exports.

The rebound in import volumes in November provided some encouragement that outsized weakness in October may have reflected disruptions from Hurricane Sandy rather than an underlying deterioration in domestic demand; however, with exports posting a much smaller rebound, the monthly trade data to date are pointing to a notably larger drag from net trade on fourth-quarter 2012 GDP growth than the 0.1 percentage point subtraction that we had previously expected. The data in November may still be reflecting, in part, the effect of disruptions to activity at US ports in late October and early November from Hurricane Sandy. As well, consistent with the gain in imports, indicators of domestic demand have remained respectable, and the stronger than expected gain in wholesale inventories in November that were reported yesterday suggests that the slowing in the pace of fourth-quarter 2012 inventory building may be smaller than previously feared. With that said, today’s report, on its own, still points to some downside risk to our forecast for GDP to grow at a 1.4% rate in the fourth quarter of 2012.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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