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Economic Forecasts

Trade Deficit Increases in Listless World Economy

Kiplinger's latest forecast on the direction of the trade deficit


GDP 1.4% growth for the year; a 2% pace in '17 More »
Jobs Hiring at 150K-200K/month through '16 More »
Interest rates 10-year T-notes at 1.4% by end '16 More »
Inflation 1.7% for '16, 2.4% in '17 More »
Business spending Flat in '16, slight gain in '17 More »
Energy Crude oil trading from $40 to $45 per barrel in Dec. More »
Housing Prices up 5% in '16, 6% in '17 nationally More »
Retail sales Growing 3.4% in '16 and '17 (excluding gas) More »
Trade deficit Widening 4% in '16, after a 6.2% increase in '15 More »

The one-two punch from a relatively strong dollar and soft global growth will drive the U.S. trade deficit up 4% this year. Exporters still are coping with the impact of the dollar’s surge between mid-2014 and the end of last year, which effectively drove up prices of U.S.-made goods for foreign buyers. Now they are hearing from officials, including International Monetary Fund Managing Director Christine Lagarde, that global economic growth may fall below an earlier IMF estimate of 3.1%, the same level recorded in 2015. Slowing growth in China and strains in European markets (which are still adjusting to Britain’s vote in June to quit the European Union) are putting a crimp in international trade.

July was an exception, with exports climbing by 1.9%, which helped shrink the monthly shortfall between exports and imports by 11.6%, to $39.5 billion. However, that followed three straight months in which the deficit rose, and exports for the first seven months this year came in 4.8% below the comparable year-earlier level. A good portion of July’s improvement came from a near tripling of soybean shipments, a performance not likely to be repeated. We expect that exporters will struggle to boost their export sales well into 2017. One source of strain: July’s trade gap with China, the world’s second-largest economy, widened to $30.3 billion from $29.8 billion in June.

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Imports also dropped in July, primarily because of fewer purchases of Chinese-made mobile phones and lower volumes of imported capital equipment and pharmaceuticals. Oil imports also were down — good news for the U.S. economy as its reliance on imported energy lessens — but the price climbed for a fifth successive month to just over $41 a barrel, the highest level since last fall for overseas oil.

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Sources Department of Commerce, Trade Data