Record U.S. trade deficit, slowing wholesale inventory gains seen economic growth dampen

Stacked containers are shown as ships unload their cargo at the Port of Los Angeles in Los Angeles, California, U.S. November 22, 2021. REUTERS/Mike Blake

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  • Trade deficit rises 9.4% to $89.7 billion in January
  • Imports of goods jumped by 1.8%; exports fall by 1.5%
  • Wholesale inventories rise unchanged by 0.8% in January

WASHINGTON, March 8 (Reuters) – The U.S. trade deficit widened to a record high in January as businesses imported more goods to replenish inventories, which could see trade continue to dampen growth economy in the first quarter.

While inventory accumulation continues, the pace is slowing, with further Commerce Department data showing on Tuesday that January’s rise in wholesale inventories was the smallest in six months amid falling vehicle inventories automobiles.

Reports support the view of significantly slower gross domestic product growth this quarter after a strong performance in the last three months of 2021.

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“This jump in the trade deficit indicates a significant drag on GDP growth in accounting terms and real GDP growth in the first quarter appears on track to be close to zero as strong demand gains are met by demand growth. imports rather than increases in production,” said Conrad DeQuadros, senior economist at Brean Capital in New York.

The trade deficit jumped 9.4% to an all-time high of $89.7 billion in January. Data for December has been revised to show a shortfall of $82.0 billion instead of the previously reported $80.7 billion. Economists polled by Reuters had forecast a deficit of $87.1 billion.

Imports rose 1.2% to $314.1 billion, also the highest level on record. Imports of goods jumped 1.8% to an all-time high of $264.8 billion. Imports of food, equipment and consumer products reached a record level. Imports of crude oil increased by $935 million.

Non-oil imports were also the highest on record. Imports are rising as businesses continue to replenish inventories to meet strong domestic demand.

Some of the rise in imports reflected higher prices as well as ships unloading goods after being stuck in ports due to labor shortages. Imports of services fell $1.0 billion to $49.3 billion in January, dragged down by transportation and travel.

Economists have seen a limited impact on trade from Russia’s war on Ukraine, which led to the United States imposing trade sanctions on Moscow.

Russia accounted for just 1% of imports and about 0.4% of exports last year, according to government data.

President Joe Biden on Tuesday announced a ban on Russian imports of oil and other energy, which will drive up prices and stoke inflation. According to government data, the country imported 52 million barrels of oil from Russia in 2019, or 2.2% of the total imported that year. Data for 2020 and 2022 were impacted by the COVID-19 pandemic.

“Russia’s share may seem like a drop in the ocean, but Russia remains the fourth-largest foreign source of crude oil for the United States,” said Shannon Seery, an economist at Wells Fargo in New York. “With the relatively easy ability to increase domestic production, the direct exposure of the United States should be quite minimal. That said, the protest against Russian oil will certainly weigh on global supply and drive up the costs of the energy even more than we have already seen.”

In January, exports fell 1.7% to $224.4 billion. Exports of goods fell 1.5% to $155.9 billion. Exports of consumer goods, including pharmaceutical preparations, declined. But exports of capital goods increased and exports of industrial supplies and materials were the highest on record.

Trade balance

GREAT GROWTH TRACTION

Services exports fell $1.6 billion to $68.5 billion, reflecting lower travel and transportation. The Russian-Ukrainian war could curb travel.

Adjusted for inflation, the trade in goods deficit hit a record $118.1 billion, from $111.7 billion in December. Trade has subtracted from GDP growth for six consecutive quarters.

“Exports could rebound somewhat over the rest of the quarter, but even so, we think the slowdown in trade could be around 2 percentage points for the first quarter,” said Daniel Silver, an economist at JPMorgan in New York. .

Most of January’s imports were used to replenish stocks. In its second report, the Commerce Department said wholesale inventories rose an unrevised 0.8% in January after rising 2.6% in December. Wholesale inventories rose 18.1% in January year-on-year.

Inventories are a key component of gross domestic product.

Inventories held by motor vehicle wholesalers fell 2.2% after jumping 5.5% in December. Wholesale inventories, excluding autos, rose 1.1% in January. This component enters into the calculation of GDP.

Inventory investment accelerated to a robust seasonally adjusted annualized rate of $171.2 billion in the fourth quarter, contributing 4.90 percentage points to the quarter’s 7.0% growth pace. Economists see a new possibility for higher inventories, as inflation-adjusted inventories remain below their pre-pandemic level. Sales to inventory ratios are also low.

But inventories are likely to be neutral to GDP growth this quarter, as they are expected to rise at as fast a pace as in the fourth quarter to help growth. Following Tuesday’s reports, economists at Goldman Sachs lowered their estimate for first-quarter GDP growth to a rate of 1.0% from 1.5%.

Wholesale sales jumped 4.0% in January after rising 0.8% in December. At the pace of January sales, it would take wholesalers 1.20 months to clear shelves, compared to 1.24 months in December. Inventories were reduced for three consecutive quarters before rebounding in the October-December period.

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Reporting by Lucia Mutikani; Editing by Andrew Heavens and Andrea Ricci

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