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This morning, the Department of Commerce released its latest international trade gap figures and the report did not make for good reading, as it showed a sharp increase in the U.S. trade deficit. Specifically, the trade deficit in goods and services widened to $38.7 billion in December, a 12% increase from $34.6 billion deficit during the month of November. (The trade-deficit figure for November was revised upward from $34.3 billion.) The increased trade gap over the final two months of calendar of 2013 may also result in a downward revision to the fourth-quarter GDP estimate of 3.2% when the government releases its revised figure on February 28th.

A closer look shows that exports fell 1.8% in December, to $191.3 billion, while imports increased by a modest 0.3%, to $230.0 billion. The primary culprit was an increase in the December goods deficit, which rose by $4.6 billion from November, to $58.8 billion. This more than offset a services surplus, which increased $0.4 billion, to $20.1 billion. When broken down further, the data showed that the main factor behind the wider deficit was a $4.3 billion reduction in exports of goods in the final month of 2013.

The notable decrease in the exports of goods reflected declines in industrial supplies and materials (down $1.1 billion), capital goods (also down $1.1 billion), automotive vehicles, parts and engines ($800 million lower), and consumer goods ($700 million lower). This was only partially offset by a $0.8 billion overall increase in services exports. The latest trade gap figures are a bit disconcerting, as they showed a slowdown in the pace of industrial activity late last year. This report, along with Monday’s weaker-than-expected issuance from the Institute for Supply Management on manufacturing activity for the month of January, raises some questions about the strength of the U.S. manufacturing sector, which is a major cog in the nation’s economic output.

Looking forward, there are some concerns that the nation’s deficit could widen further, given the aforementioned slowdown in the pace of manufacturing activity and the recent jump in oil and natural gas prices. Indeed, energy prices have been on a steady ascent, as demand for heating supplies has spiked in recent months given the severe cold weather that much of the country has thus far experienced in 2014. 

All in all, it was a disheartening report and raises a few concerns going forward. If heating prices, as noted, continue to rise, which, in our opinion, would reduce disposal income and the purchasing power of the consumer, it could very well hurt U.S. manufacturing activity in the months to come. Such a scenario would make it harder for the U.S. economy to maintain its current pace of growth.  

At the time of this article's writing, the author did not have positions in any of the companies mentioned.