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Jan. 29, 2020, 10:35 a.m. EST

U.S. trade deficit in goods jumps 8.5% in December, points to softer 4th quarter GDP

Imports surge in final month of 2019 as China trade tensions ease

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By Jeffry Bartash, MarketWatch


Reuters
The U.S. trade deficit is going to show a big increase in December.

The numbers: The U.S. trade deficit in goods jumped 8.5% in December as tensions with China eased and imports surged, potentially signaling somewhat softer GDP in the fourth quarter.

The gap in goods climbed to $68.3 billion in the final month of 2019 from $63 billion in November, the government said Wednesday .

The wider deficit could spur Wall Street forecasters to trim their forecasts for gross domestic product in the fourth quarter below 2%. Bigger deficits subtract from GDP.

Advance figures for wholesale trade, meanwhile, slipped 0.1% while retail inventories were unchanged in December. They were also weaker than expected.

What happened: Exports of goods rose 0.3% in December, but imports shot up 2.9% to break a string of three straight declines.

Imports fell in the fall after the U.S. raised tariffs again on China in September and companies sought to time future shipments based on the prospects of even higher tariffs. Imports of consumer goods made in China were particularly hard hit.

The easing of trade tensions between the world’s two largest economies in December, however, led to a snapback in imports in the month. Imports could also rise again in January in the wake of the so-called Phase One deal with China that was signed on January 15 and that’s been seen as a truce of sorts.

The U.S. government will release overall trade numbers for December next week, but the size of the deficit is closely tied to changes in the exports and imports of goods.

Read: Take away the military and durable-goods orders sink 2.5% at the end of 2019

Read: Consumer confidence running high at the start of 2020, hits biggest peak in 5 months

Big picture: The larger trade deficit in December prompted some Wall Street forecasters to trim estimates for U.S. economic growth in the fourth quarter. Yet it doesn’t show any fundamental change in an economy that’s growing around 2% a year and shows little sign of faltering.

What they are saying? “The increase in imports reflected relatively broad based gains, with consumer goods starting to rebound following the imposition of earlier tariffs on that category,” said economist Katherine Judge of CIBC Capital Markets.

“The headline deficit was close to our forecast so it likely won’t change our 1.7% Q4 GDP forecast, but it will likely trigger a wave of modest downgrades,” said chief economist Ian Shepherdson of Pantheon Economics.

Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -3.56% and S&P 500 /zigman2/quotes/210599714/realtime SPX -3.35% rose in Wednesday trades for the second straight day as investor worries over the coronavirus have eased a bit.

Read: Economic hit from coronavirus likely to be short lived, but it’s still ‘a little scary, frankly’

The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.67% was little changed at 1.62%.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
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-1,032 -3.56%
Volume: 458.71M
Feb. 24, 2020 5:04p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,225.89
-111.86 -3.35%
Volume: 2.75B
Feb. 24, 2020 5:04p
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/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
1.36
-0.0092 -0.67%
Volume: 0.00
Feb. 25, 2020 8:56a
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Jeffry Bartash is a reporter for MarketWatch in Washington.

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