The U.S. trade deficit grew in December and overall in 2011 for the second year in a row, a sign the economy is picking up steam, say economists.
From November to December, the trade deficit grew to $48.8 billion from $47.1 billion. Within that gap are signs of economic growth: an increase in U.S. imports of capital goods, and modest growth in exports that aligns with President Obama’s five-year goal to double U.S. exports by 2015. If maintained in 2012, these trends could relieve some of the pressure put on the deficit by climbing oil prices, economic volatility in Europe and the burgeoning trade deficit with China.
The trade deficit closed the year at $588 billion, its highest since 2008, the year before the recession. But economists say this is healthy. “An increase in the trade deficit commonly happens when we are growing well,” says Kevin Harris, chief economist at the market analyst group Informa Global Markets. “Even though our trade deficit is large, we’ve been able to sustain it for a long time.”
Imports grew by 1.3% for the month of December and 13.8% for the year. The largest share in December was in capital goods, which tallied $1 billion more than in November. The jump suggests American companies are investing in supplies to build new products. It also mirrors recent gains in the manufacturing sector, which saw a faster growth, bigger profits and more jobs in 2011 than in recent years.
Although imports outpaced exports in December and for the year, exports rose by 14.5% in 2011. This is less than in 2010 but on target with President Obama’s goal to double exports by 2015. Much of the demand comes from emerging economies, which are buying U.S. products – mostly industrial supplies and materials such as tractors and industrial combustion engines – to feed their manufacturing and agricultural needs.
Should these trends continue in 2012, they could help offset factors that typically swell the deficit, such as rising fuel prices, which increased by 20.8% in 2011. They could also provide a buffer against what will likely be lackluster trade with Europe in the coming months, despite a 1.8% spike in European-bound exports in December.
One factor that continues to plague the trade balance is the deficit with China, which closed at a record $295.7 billion for the year. Economists say the December gap in particular was off, due to the early Chinese New Year in January, which compelled Chinese businesses to move products aggressively before the holiday. “The January report will be more favorable – it will be narrower, and probably steady or flat in February and widen out in March, as we follow the production cycle in China,” says economic forecaster John Herrmann of Herrmann Forecasting, LLC.
All told, the growing trade deficit is a positive sign for a U.S. economy eager to grow at a faster clip in 2012.