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Economic Forecasts

Americans Import More Goods for the Holidays

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

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Global trade volumes are on the rise, supported by healthy economic activity in much of the world, which is providing a modest lift for U.S. exports. That is a plus for manufacturing activity, which has strengthened notably in export-oriented industries. Those companies are also benefiting from a cheaper U.S. dollar, which makes their products cheaper for foreigners to buy, in turn creating more jobs for Americans.

But imports are heading up too, particularly in the closing months of the year as retailers stock up for the holiday shopping season. National unemployment is a low 4.1%; incomes are rising; and economic growth in the United States is increasing at the best pace since the 2007-09 recession. That is fueling more domestic demand, which is consistent with imports now outpacing gains on the export side of the ledger. As a result, we look for 2017’s trade gap to be around $535 billion, up 6% from 2016’s $504 billion deficit. 2018’s shortfall will likely grow 5%-6%.

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So far in 2017, exports are up by about 6.4% from a year earlier; however, imports are ahead 6.5%. The Trump administration takes the view that deficits are a sign of economic weakness and that they are caused by unfair trade practices by China and other nations, leading it to seek rewrites of major trade deals, such as the North American Free Trade Agreement. President Trump also pulled the United States out of the Trans-Pacific Partnership at the start of this year, which would have bound 12 Pacific Rim nations in a free-trade pact.

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A surge in imports caused the trade deficit to widen sharply in October. The gap increased 8.6% from September’s total to $48.7 billion, the largest monthly shortfall since January. More demand for foreign-made cell phones, furniture, appliances, toys, clothing and other consumer goods drove the spike. Exports were flat, which could be attributed to lingering fallout from hurricanes Harvey, Irma and Maria. Those storms ripped across the Southeast, causing wind damage and flooding in some key port towns. Regardless, the composition of the pickup in imports implies that merchants anticipated a brisk shopping season and stockpiled for it.

Sources: Department of Commerce, Trade Data