This morning data from the US Commerce Department showed the US trade deficit in January at its highest level since March 2012. The numbers were not unexpected as the $48.5 billion deficit was bang on economist estimates.
Why this matters: Trade is a big issue for the Trump Administration, especially as the trade gap cut 1.7% from GDP in the fourth quarter. It will be hard for the US economy to grow above 3%, as Trump wants, given the demographics and the Trump Administration’s desire to limit immigration with trade deficits subtracting that much from the statistical GDP measure.
And with the Fed clearly in a tightening mode, the prospect of a stronger dollar and larger trade deficits has increased. Yet, the larger deficit – combined with weak data on housing starts, consumption and construction spending suggest that, actually, the US economy may not re-accelerate as fast as the Fed anticipates. The wild card, then, is how the Trump Administration reacts to reign in this deficit.
