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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 1.9% by end '17 More »
Inflation 1.8% 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 More »

U.S. exporters will struggle to expand sales in slower-growing overseas markets, even though the drag from a higher-valued dollar is easing. The surge in the dollar’s value from mid-2014 to the end of last year effectively drove up prices for U.S.-made goods in foreign markets, while consumer demand at home continues to draw in more imports. The result is likely to be a modest 4% widening in the U.S. trade deficit this year. Exporters will continue to face an uphill battle in 2017 because growth in key markets, including China and the European Union, will lose a step from this year’s pace. Talks on the terms of Britain’s exit from the EU are to begin by the end of the first quarter of 2017; they’ll be an additional wild card for cross-border business because they will fan global policymakers’ concerns about a rising tide of anti-free-trade sentiment.

Several anomalies have affected monthly trade figures recently. In August, it was an import surge related to broadcast rights for the Olympics. Payments to broadcast the summer games from Brazil helped push the monthly import total up by 1.2%, easily outstripping a modest 0.8% pickup in exports. That helped widen the August shortfall on trade by 3%, to $40.7 billion, resuming a trend toward growing monthly deficits that was interrupted in July by a bulge in overseas sales of U.S. soybeans. Crude oil imports also increased in August as the volume of barrels imported daily climbed to 8.3 million, from 7.1 million in August 2015.

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The positive news was the fact that August marked the third straight monthly increase in exports. Even though special factors were involved in July and August, the uptick implies that the lingering impact from the dollar’s two-year rise against other major trading currencies is fading. Granted, monthly bilateral deficits with key trade partners China, Canada and Mexico all grew in August. And there typically is a pickup in imports late in the year ahead of the holiday sales season. But if the dollar’s surge has largely run its course, it potentially makes trade less of a drag on broader economic growth later this year and in 2017.

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Sources Department of Commerce, Trade Data