Weak Demand Shrinks Trade Deficit To Lowest Level Since 2013, Despite Record Consumer Good Imports

The U.S. trade deficit narrowed in November to its lowest level in nearly a year as falling prices and weaker demand for foreign oil pushed down imports. Significantly weaker demand offset record imports of consumer goods.

“The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $39.0 billion in November, down $3.2 billion from $42.2 billion in October (revised),” the Commerce Department report said. “November exports were $196.4 billion, $2.0 billion less than October exports. November imports were $235.4 billion, $5.2 billion less than October imports.”

The trade deficit fell by 7.7 percent, which is the smallest deficit since December 2013. However, as the report stated above, October’s deficit was revised from an initially reported $43.43 billion, leaving some economists cautious amid the news.

Economists surveyed by The Wall Street Journal had forecast a trade deficit of $42 billion in November.

Exports overall decreased by 1 percent from the $196.36 billion in October, while imports declined 2.2 percent to $235.36 billion. However, in the first 11 months of 2014 exports rose 2.9 percent on a year-over-year basis, while imports were up 3.3 percent.

Crude oil fueled the falling imports, as petroleum imports measured in dollars was the lowest since August 2009. Oil prices precipitously declined from a summer high of $100 per barrel during the fall, and fell below $50 a barrel this week. The Commerce Department said the average price of a barrel of crude oil fell to $82.95 in November, down from $88.47 in October and $94.69 a year earlier.

However, the lower prices did not fuel more demand as the administration claimed it would, as the volume of imported oil in November (189 million barrels) clocked in as the lowest monthly since 1994, according to the Commerce Department report. Despite myriad rules and regulations, as well as decreased permits on federal lands, an increased in U.S. oil production has limited domestic demand for foreign oil.

While non-petroleum imports were down in November on a seasonally adjusted basis, imports of consumer goods were the highest ever on record. Demand increased for cell phones, jewelry and apparel. The data suggest a strengthening U.S. dollar against a weakening euro has made foreign goods and services relatively more affordable. The euro hit a 9-year low on Monday amid fears of inflation and Greece exiting the euro zone without paying off bailout debts.

Through the first 11 months of the year, exports to the EU were up 5.5 percent from last year, while imports from the E.U. rose 7.5 percent. Meanwhile, exports to China were up 2.8 percent, while imports increased 5.8 percent.

However, the flip-side of this economic reality is that U.S. firms are clearly challenged with sales abroad. Firms shipped less civilian aircraft, which is typically volatile, but also computers, generators and other types of machinery in November. While trade was a net plus to U.S. economic growth during the 3Q, adding 0.78 percentage point to overall GDP growth, most economists agree it will not be in the final three months of 2014.