March 6, 2025
The trade deficit widened by an astonishing $33.3 billion in January to $131.4 billion after having widened by $19.8 billion in December. Firms have been racing to import goods prior to the imposition of tariffs.
Exports rose $3.3 billion or 1.2% in January to $269.8 billion
Imports surged by $36.6 billion to $401.2 billion or 10.0% after having risen 3.6% in December. In the past year imports have risen 23.1%. Of the $36.6 billion increase overall, $23 billion was in industrial supplies (almost all of which was in finished metal shapes), $5.0 billion in capital goods (largely computers and computer accessories) and $6.0 billion in consumer goods (primarily pharmaceuticals). And by country imports from Canada rose only by $3 billion, and from Mexico by $2 billion. The bulk of the increase in imports came from Switzerland (($10 billion), followed by Ireland ($6 billion), and China ($4 billion).
The trade deficit in real terms narrowed by $2.5 billion in June to $91.4 billion. The trade component subtracted 0.7% from GDP growth in the second quarter.
The surge in the trade deficit will subtract a considerable amount from first quarter GDP growth. And, in fact, the Atlanta Fed GDP Now forecast calls for a 2.4% decline in Q1 GDP. However, much of that cline seems to depend upon the way they calculate that figure. First of all consumer spending took a big hit in January as the result of the extremely cold, snowy, and icy winter weather conditions that prevailed throughout most of the country combined with the wildfires in the L.A. area. Such spending should rebound in February and March. And if imports rose sharply to beat the increase in tariffs, then imports recorded in January will be countered by a much lower level of imports in subsequent months. Finally, it is unlikely that all of those imports in January were used in production which suggests that there may be a surprisingly large increase in imports in the first quarter. Thus, there is still a lot of data yet to be received for first quarter GDP before that figure is released in late April. for now, we ill expect an increase of 1.5-2.0%, but with a high degree of uncertainty.
Stephen Slifer
NumberNomics
Charleston, SC
Hi Steve,
I’m a bit confused, has the deficit increased so sharply as a result of overall reduced economic activity? Or is there some other factor at play here? Material costs? or? This seems surprising with the general weakness of the dollar.
Best,
Hi Chris what we are have seen in the recent trade data as well as what happened to trade in the first few months of the year were wildly distorted by the recession and subsequent rebound. The dramatic narrowing of the trade gap earlier did not mean a lot. Nor does the recent rebound. I guess the only point I was trying to make is that the increases in both exports and imports tells us nothing more than the rebound is underway with the recovery in the U.S. currently outpacing the rest of the world.
Ah, that makes sense.
Thanks