US trade deficit widens as expected in October
|Summary
The U.S. international trade deficit widened for the second consecutive month in October as import growth outstripped exports. Exports were held back by a decline in natural gas specifically, but there were signs of slower growth beginning to bite, which we expect to remain a headwind for exports into next year. Net exports now look to be a considerable drag on fourth quarter growth.
Deficit widens further in October
The U.S. trade deficit widened for the second straight month to -$78.2 billion in October as import growth (+$2.2 billion) outpaced exports (-$1.9 billion). Despite the sharp widening the past two months, the deficit still sits smaller in October than the average that prevailed over the past 12 months (chart). The advance merchandise trade data released last week largely signaled this outcome for October, but a solid gain in services exports helped mute the size of widening. The drivers of export weakness were also not as widespread as we anticipated.
Starting with the latter, weakness in October exports cannot be completely explained by a failing global backdrop. The decline in export growth can almost entirely be explained by less natural gas exports specifically. Industrial supplies and materials exports decreased by $2.4 billion due to a $1.4 billion pull back in natural gas and a $1.3 billion decline in other petroleum products. Fertilizer exports also slid by about $440 million, suggesting the categories at the center of the Russia-Ukraine war experienced some right-sizing in October potentially from increased European supply. The U.S. has still exported a sizable amount of natural gas so far this year with natural gas exports up $23 billion year-to-date over last year through October. But industrial supplies exports are now down for the fourth straight month and there was only a muted $3 million gain in capital goods exports in October. Together these categories typically represent about 65% of total goods exports and the recent weakness in these categories demonstrates waning global growth, something we expect to see into next year.
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