US DATA: Record Trade Deficit Driven By Metals Pre-Empting Tariffs

January's goods and services trade deficit was even wider than estimated at $131.4B ($2.6B bigger than consensus of $128.8B which had ballooned after the surging goods deficit), representing a material jump from December's $98.1B (downwardly revised from $98.4bln) and by far the largest monthly print in history.

• Whilst it’s a nominal measure and so historical comparisons should be taken with caution, the deficit compares with the previous record of $101.9bn from Mar 2022.
• The goods & services deficit widened to 4.1% of GDP on a three-month annualized basis vs 3.1% of GDP in the three months to October (pre US election result).
• The larger deficit was driven by a +10.0% M/M jump in goods & services imports (second highest on record) - following mid-3% sequential increases seen in both Nov/Dec. Unsurprisingly, goods imports were the standout at +12.3% M/M (+4.2% Nov/Dec), while services imports printed a much more regular +0.6% M/M (+1.6% Dec).
• Exports meanwhile increased just +1.2% M/M after seeing no clear trend in recent months (-2.6% Dec). Developments were positive across goods (+1.6% M/M) and services (+0.6% M/M).
• In real terms, industrial supplies did indeed lead the surge in imports as the advance nominal details had indicated. They jumped 32% M/M for 62% Y/Y, with consumer goods 26% Y/Y and capital goods 18% Y/Y.
• In today's nominal details, this jump in industrial supplies comes from "finished metal shapes" in signs of clear tariff front-running. At $34.3bln, they're around around a 10x increase to its 2023 monthly average. There are yet signs of notable front-running in other key supplies, which possibly still be seen in February.
• Yesterday's postponement of US tariffs on cars and car parts imported from Canada and Mexico meeting some compliance criteria (followed up by a related announcement just now) suggests that imports on these goods might not plummet as much as otherwise expected imminently - however, inventories on affected products are potentially already well built up by now, meaning that current import levels are well above a sustainable level.
• Also from a consumption perspective, the recent deterioration in sentiment across a set of soft data in the US, with generally lower prints in the 'new orders' category, at least has the potential to also filter through lower imports at some stage.