US DATA: Trade Deficit Continues To Widen On Domestic Demand, Tariff Concerns

December's goods and services trade deficit was slightly wider than thought at $98.4B ($1.6B bigger than expected), and a sharp rise from $78.9B in November (upwardly revised $0.7B).

• This was easily the biggest monthly nominal deficit since March 2022, and the 2nd largest in history. Since nominal GDP has growth starongly in the last couple of years however, the deficit is closer to 3.4% of GDP, the highest since Q3 2022 but below the 4+% deficits that year and in the early 2000s.
• The goods deficit expanded sharply, to $122.0B ($104.0B Nov), a nominal record and around 4.4% of GDP, while the services surplus dipped slightly to $24.5B ($25.1B Nov), around 1% of GDP. Good exports fell 4.2% with imports rising 4.0% (the latter to a record), with services exports / imports up 0.5% / 1.4%, respectively. Overall goods and services exports were down 2.6% with imports up 3.5% for a second consecutive month.
• In real terms, the gains in imports continue to be impressive, particularly on the capital goods side (re-approaching volume-adjusted records and up 15.2% Y/Y), while consumer imports continued to jump, up 12.6% Y/Y.
• Overall, the goods and services deficit was 3.1% of GDP in 2024, from 2.8% in 2023.
• One way of thinking about this is as a mirror image of the strong domestic demand story at the end of last year, per apparently accelerating GDP personal consumption in Q4. It also looks as though it is reflecting front-running of future tariffs.
• In both cases, we might see trade deficits remain elevated in early 2025, with consumer and manufacturing demand appearing to remain strong, and given the 1-month postponement of 25% tariffs on Canada and Mexico to March  December goods deficits were posted with China ($25.3B), the EU ($20.4B), Mexico ($15.2B), Switzerland ($13.0B), Vietnam ($11.4B), and Canada ($7.9B), among others.
• These data set the stage for the ongoing tariff threats from the Trump administration.