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U.S. Trade Deficit Widens in November: What Investors Need to Know

AInvestTuesday, Jan 7, 2025 9:04 am ET
2min read



The U.S. trade deficit widened in November, driven by a decrease in exports and an increase in imports. This reversal from the previous month's narrowing deficit has investors wondering about the implications for the U.S. economy and their portfolios. Let's dive into the data and explore what this means for investors.

In November, the U.S. trade deficit contracted 2.0% to $63.2 billion, according to the Commerce Department's Census Bureau. This was a reversal from the previous month, where exports increased and imports decreased, leading to a narrowing of the trade deficit. The decrease in exports was largely due to a decline in shipments of industrial supplies and materials, as well as motor vehicles, parts, and engines. The increase in imports was driven by higher purchases of consumer goods, particularly cell phones and other household goods. Additionally, crude oil imports increased, contributing to the widening deficit.

The goods trade deficit narrowed 0.6% to $89.4 billion in November. When adjusted for inflation, the goods trade deficit contracted $2.3 billion, or 2.7%, to $84.8 billion. The so-called real goods trade deficit is so far averaging $86.0 billion in the fourth quarter, little changed from the third-quarter average.

The drop in imports is in line with businesses throttling back on inventory accumulation in anticipation of slower demand this year following 525 basis points worth of interest rate hikes by the Fed since March 2022. This is seen curbing growth in the fourth quarter. The government is scheduled to publish its snapshot of GDP growth for the October-December period later this month.

The goods trade deficit with China fell $2.4 billion to $21.5 billion, with imports declining sharply. Chinese imports typically drop in November, when most businesses would have completed their holiday shopping orders. Goods exports to China also decreased.

Economists saw limited impact on trade flows from disruptions in the Red Sea, where attacks on container ships by Iran-aligned Houthi militants have forced companies to reroute vessels, driving up costs sharply along with insurance premiums. Even if shipping disruptions in the Red Sea prove longer-lasting, the impact to U.S. trade is likely to be modest outside of the run-up in shipping prices.

The widening trade deficit has a significant impact on GDP growth and employment. In 2024, the trade deficit reached $84.4 billion, the highest level since the Russia-Ukraine war began in 2022, shaving 0.6% off the U.S. GDP growth rate in the third quarter. Historically, the trade deficit has been a drag on U.S. economic growth, with a 1% increase in the trade deficit reducing GDP growth by 0.1% (Obstfeld & Rogoff, 1995). However, the impact on employment is less clear-cut. While a widening trade deficit can lead to job losses in import-competing industries, it also creates jobs in export-oriented sectors and supports overall economic growth.

In conclusion, the widening U.S. trade deficit in November has investors wondering about the implications for the U.S. economy and their portfolios. While the trade deficit has historically been a drag on economic growth, its impact on employment is less clear-cut. Investors should monitor the trade deficit and its potential impact on the broader economy, as well as the actions of the incoming Trump administration, which may have an influence on the U.S. trade deficit and the broader economy.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.