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Economic Forecasts

Trade Deficit Widening in 2017

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

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GDP 1.6% growth for the year; a 2.1% pace in '17 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.4% in '17, up from 2.1% in '16 More »
Business spending Slight gain in '17 after flat '16 More »
Energy Crude oil trading from $50 to $55 per barrel in March More »
Housing Single-family starts up 9% in '16, 11% in '17 More »
Retail sales Growing 3.9% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, matching increase in '16 More »

A strong dollar will push export prices higher and boost the U.S. trade deficit 4% this year, putting unwelcome drag on growth. The positive news is that it will follow a modestly-better-than-expected outcome for 2016, thanks to an unanticipated surge in overseas agricultural sales. With 11 months’ trade data in hand, the full-year 2016 shortfall should just about equal 2015’s $500-billion total before widening to $520 billion for 2017.

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American farm exports got a mid-2016 boost because of poor soy harvests in Brazil and Argentina. The benefit has faded now but it temporarily forced China and other importing countries to take more U.S. supplies than planned.

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Looking ahead to 2017, U.S. consumers’ appetites for imported goods are being whetted by rising incomes and a reinvigorated greenback. The dollar’s value has appreciated about 5% since the presidential election, on hopes that the incoming Trump administration, already inheriting a relatively strong economy, will generate further job gains. On the downside for exporters, the stronger dollar and concerns that Trump could trigger trade wars through tariffs cloud the prospects of expanding trade overseas.

China’s economic growth rate continues to slow while Beijing is expressing resentment over being identified as an unfair trader, warning that it too can target U.S. trade interests if tariffs are levied on its exports to U.S. consumers. The European Union’s pace of expansion is anemic as it grapples with how to handle Britain’s exit from the common market area, so there’s little chance of any robust pickup in overall exports in 2017

The latest monthly trade data, for November, showed a strong gain in exports of industrial supplies and materials, offset by a nosedive in capital goods including airplanes. Imports were up strongly because of a 7.6% jump in oil prices.

Sources Department of Commerce, Trade Data