US trade deficit surges to $40B billion in December; much larger than expected

The Associated Press ~ staff The News
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WASHINGTON - The U.S. trade deficit surged to a larger-than-expected US$40.18 billion in December, the biggest imbalance in 12 months as the rebounding American economy pushed up demand for oil and other imports.
The U.S. Commerce Department said the December deficit was 10.4 per cent higher than the November imbalance. It was much larger than the $36-billion deficit that economists had expected, with much of the increase coming from a big jump in oil imports.
For December, exports of goods and services rose for an eighth consecutive month, climbing 3.3 per cent to $142.70 billion. The increase was led by strong gains in sales of commercial aircraft, industrial machinery and U.S.-made autos and auto parts.
Imports were up 4.8 per cent in December to $182.88 billion, led by a 14.8 per cent surge in oil imports - the highest level since October 2008.
For all of 2009, the deficit totalled $380.66 billion, the smallest imbalance in eight years, as a deep recession cut into imports. However, economists believe the deficit will rise in 2010 as U.S. demand for imports outpaces U.S. export sales.
"Trade may support the U.S. recovery going forward but only marginally now that domestic demand is once again pulling in imports," Sal Guatieri, senior economist at BMO Capital Markets, said in a research note.
The wider-than-expected trade deficit combined with other disappointing reports will likely reduce overall economic growth in the October-December quarter, analysts said.
The government initially estimated that the gross domestic product was expanding at an annual rate of 5.7 per cent in the fourth quarter. But Harm Bandholz, an economist at UniCredit Research, said he believed that would be reduced to around 5.25 per cent when the government releases its updated GDP estimate on Feb. 26.
By country, the deficit with China totalled $226.83 billion in 2009, still the largest imbalance with any country but down 15.4 per cent from the all-time record of $268.04 billion set in 2008.
The deficit with Canada dropped by 74.2 per cent in 2009 to $20.21 billion while the deficit with the European Union fell by 36.8 per cent to $60.54 billion.
The December deficit was the largest since the imbalance totalled $41.86 billion in December 2008. The deficit, which hit a nine-year low of $25.81 billion in May, has been rising in recent months as the U.S. economy has been pulling out of the deepest recession since the 1930s and demand for imports rebounds.
The deficit is expected to keep rising in 2010 even though U.S. manufacturers will be benefiting from stronger overseas sales as the global economy rebounds and a weaker U.S. dollar makes their products more competitive in foreign markets. That is because export gains are expected to be outpaced by an even larger rebound in imports.
Last year's decline in the value of the dollar against the euro, the joint currency of 16 European countries, and several other major currencies has helped make American goods more competitive on overseas markets. That will help lift the fortunes of America's beleaguered manufacturing sector.
Caterpillar Inc., the world's largest maker of construction and mining equipment, said last month that it expected its sales will rise 10 per cent to 25 per cent this year. Caterpillar generates more than 60 per cent of its sales overseas and it is forecasting strong growth to come from developing countries including China and India.
Dow Chemical Co., another major U.S. exporter, said that it expected continued improvement in its sales to emerging markets in Asia and Latin America but is less optimistic about markets in the United States and Europe due to expected continued high unemployment.

Organizations: U.S. Commerce Department, BMO Capital Markets, UniCredit Research European Union Caterpillar Inc. Dow Chemical Co.

Geographic location: United States, WASHINGTON, China Latin America Canada India Asia Europe

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