U.S Trade Gap Widened in January

WASHINGTON—The U.S. trade deficit widened in January as both exports and imports decreased, indicating slower global economic growth remains a strain on the domestic economy. 

The trade gap expanded 2.2% from the prior month to a seasonally adjusted $45.68 billion, the Commerce Department said Friday. That was wider than the deficit of $44.0 billion expected by economists The Wall Street Journal surveyed. 

Exports remained under pressure from a strong dollar in January, falling 2.1% from the prior month. Imports dropped 1.3% in January after ticking slightly higher in December. 

January’s level of goods exported was the lowest since February 2011, indicating the global economy remained weak in the first month of this year. Swooning commodity prices and concerns over the extent of China’s economic slowdown prompted financial-market turmoil in the initial weeks of 2016.

Trade figures can be volatile from month to month. December’s deficit was revised to $44.70 billion, from the previously estimated $43.36 billion. 

In January, shipments of capital goods, industrial supplies, foods and consumer goods all decreased. The average price of a barrel of imported crude oil was $32.06 in January, the lowest level since April 2004. One bright spot was the automotive market: The U.S. exported and imported more cars and other vehicles in January than in December. 

A strong dollar and low oil prices are causing trade shifts. Exports to Canada, China, and South and Central America all hit multiyear lows, reflecting how expensive it has become for consumers in regions with slowing economies and weaker currencies to buy American products. By contrast, U.S. imports of cellphones, diamonds, and wine increased as a strong dollar made foreign products more affordable here. 

The dollar is expected to strengthen further this year provided the Federal Reserve proceeds with planned gradual increases in short-term interest rates. Higher U.S. interest rates will likely strengthen the dollar further, just as many central banks around the world are loosening monetary policy and pushing their currencies in the opposite direction. 

While falling commodity prices and slowdowns in major economies such as China and Brazil have hit net exports of goods and services in recent months, the domestic U.S. economy remains relatively resilient. 

Trade was a 0.25 percentage point drag on the economy’s overall 1% growth rate in the final quarter of 2015, according to a second reading of fourth-quarter gross-domestic product released last week. Some analysts said January’s trade report indicates the weakness in exports in the first month of the year is likely to translate into an even larger drag on growth from trade in the first quarter. 

However Jim O’Sullivan, an economist at High Frequency Economics, noted that “despite the drag from trade, overall growth still looks strong enough to generate ongoing labor market improvement—as was evident from the February employment report.” U.S. employers added a seasonally adjusted 242,000 jobs in February, the Labor Department said Friday, and the unemployment rate held steady at 4.9%.