Trade Deficit Widens; Weekly Jobless Claims Rise Modestly

Current Account
Elaine Thompson/AP

By Lucia Mutikani

WASHINGTON -- The U.S. trade deficit in December widened sharply to its highest level since 2012 as a stronger dollar appeared to suck in imports and weigh on exports, which could see the fourth-quarter economic growth estimate revised lower.

The Commerce Department said Thursday the trade deficit jumped 17.1 percent to $46.6 billion, the largest since November 2012. It was the biggest percentage increase since July 2009 and also reflected a sputtering global economy.

%VIRTUAL-pullquote-It is not hard to come up with reasons for the weakness in today's report -- sluggish foreign growth and a strong dollar are the obvious ones.%"It is not hard to come up with reasons for the weakness in today's report -- sluggish foreign growth and a strong dollar are the obvious ones," said Michael Feroli, an economist at JPMorgan (JPM) in New York.

Wall Street had expected the trade gap to narrow to $38 billion. When adjusted for inflation, the deficit widened to $54.7 billion from $48.7 billion in November.

December's shortfall was wider than the government had assumed when it reported last week that gross domestic product had expanded at a 2.6 percent annual rate in the fourth quarter. Trade was estimated to have subtracted 1.02 percentage point from GDP growth.

Economists said it now appeared the drag on growth was bigger and they expect the government to lower the fourth-quarter growth estimate by as much as four-tenths of a percentage point when it publishes revisions later this month.

On an inflation-adjusted trade-weighted basis, the dollar appreciated 5.3 percent last year.

While trade is on the back foot, the labor market is weathering the strong dollar and the global slowdown.

Initial claims for state unemployment benefits increased 11,000 to a seasonally adjusted 278,000 for the week ended Jan. 31, the Labor Department said in a separate report.

The increase, which was less than economists' expectations for a rise to 290,000, left intact the bulk of the prior week's huge decline, which had taken claims to their lowest level since April 2000.

U.S. stocks were trading higher, while the dollar slipped against a basket of currencies. U.S. Treasury debt prices fell.

Firming Labor Market

January's employment report to be released Friday will likely show that nonfarm payrolls increased 234,000, according to a Reuters survey of economists, which would be the longest stretch of job gains above 200,000 since 1994.

A firming labor market, together with lower gasoline prices, is seen bolstering consumer spending, which is expected to drive growth in early 2015.

"We still believe the U.S. can remain an oasis of prosperity in the world even if international developments are starting to intrude a little on our buoyant forecasts for 2015," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

In a sign of the consumer-driven strengthening in domestic demand, imports rose 2.2 percent to $241.4 billion in December. The increase was in part due to a jump in petroleum imports, which hit their highest level since May 2013.

%VIRTUAL-WSSCourseInline-876%The higher petroleum imports probably found their way into wholesale inventories and could prove temporary.

"We suspect ... storage plays by domestic oil market participants, with a large number of oil investors racing to buy crude at lower prices and storing it amid contango plays," said Gennadiy Goldberg, an economist at TD Securities in New York.

Imports of non-petroleum products surged to a record high, also reflecting the strength of the U.S. dollar.

But with the dollar's rise, exports slipped 0.8 percent to $194.9 billion in December, an eight-month low.

A range of companies, including Procter & Gamble (PG), the world's largest household products maker, and Microsoft (MSFT) have warned that the dollar was hurting profits.

Exports have been hurt by a labor dispute at U.S. West Coast ports, which has been cited by some manufacturers as causing delays in the movement of goods.

Exports to Canada and Mexico -- the main U.S. trading partners -- fell in December. In contrast, exports to Japan, China and the European Union rose in December.

The politically sensitive U.S.-China trade deficit fell 5.5 percent to $28.3 billion.