The U.S. trade deficit for the month of January surprised economists by increasing more than expected in a sign that the economy continues to be strong.
The trade deficit in goods and services rose by $3.3 billion or 5.1%, to $67.4 billion in January, according to Thursday’s report released by the Bureau of Economic Analysis. In comparison to January 2023, the deficit decreased $2.9 billion, or 4.1% from $70.3 billion.
Exports increased 0.1% to $257.2 billion in January and imports increased by 1.1% to $324.6 billion.
The increase in the trade deficit can be attributed to companies rebuilding inventory, said Christopher Low, Chief Economist at FHN Financial.
As companies focus on rebuilding inventories, this tends to boost imports which was reflected in an increase of $3.1 billion to $263.4 billion in January, for the imports of goods.
“If consumption is being met by foreign production rather than domestic, it does imply that growth is a little weaker as a result” said Low.
The report showed a shift in trading patterns as imports from Japan and Taiwan rose while the deficit with Mexico decreased and there was no substantial growth in the deficit with China.
“We’re seeing an increase in imports from places other than our two biggest trade partners,” said Low.
The exports of goods to Japan and Vietnam also increased. Overall, exports for the month of January rose by $0.2 billion to $171.8 billion. The recent lifting of tariffs of U.S. products overseas has contributed to recent growth.
According to the Office of the United States Trade Representative, in June 2023, India lessened tariffs on certain U.S. products, positively impacting the apple sector.
Ever since, apple exports from Washington state have gone up. For Chelan Fresh, this meant an increase in sales by approximately 6,000%, said Bryan Peebles, export sales director. Additionally,for this company, apple shipments were higher this January over the previous year.
Another reason for the increase in the trade deficit was the surge in Americans heading abroad for vacations, according to Low.
An unseen increase in the exports of services, especially in the travel industry by $0.1 billion, which interfered with economists’ forecasts.
With airfare costs stable, Americans are expected to keep traveling elsewhere during the heavy summer vacation months.
The increase in the trade deficit will reduce gross national product for the first quarter.
This is in accordance with the revised GDP figures for the fourth quarter of 2023, as it reported an increase in disposable personal income by 4.0%, or $202.5 billion.
For the month of January, the trade gap widened as demand was sufficed overseas, said Stan Shipley, Senior Management Director of Evercore ISI.
“It looks like the economy is slowing here, trade had added to growth, it is no longer adding to growth,” as demand slows down in the next couple of months, said Shipley.
Once again, the report proves the U.S. continues to have a healthy economy and consumer spending remains steady.
