As Consumers Remain Resilient

• The U.S. nominal trade deficit widened to a record high in 2022.
• The goods deficit fell sharply last year as consumers shifted spending from goods to services.
  
• Trade will be a drag on GDP growth in the near term.

The trade deficit widened in December, in line with PNC’s forecast. The U.S. trade deficit in goods and services widened 10.5% in December to $67.4 billion from an upwardly-revised $61.0 billion in November (reported as $61.5 billion in the prior release), according to the U.S. Commerce Department. The consensus expectation was for a widening to $68.5 billion. The widening in December was driven by a decline in exports and an increase in imports.

The goods deficit widened to $90.6 billion in December from $83.2 billion in November while the services surplus increased slightly to $23.2 billion from $22.2 billion in November. After rising to a pandemic-era peak of $295.8 billion in March 2022, goods imports fell 12.5% to $258.8 billion in December 2022 as consumers changed spending patterns from goods to services. Exports fell 0.9% in December from November while imports rose 1.3%. For 2022, the trade deficit increased $103.0 billion, or 12.2%, from 2021. Exports increased $453.1 billion or 17.7%. Imports increased $556.1 billion or 16.3%. The trade deficit widened in 2022 to the largest level on record.

Trade was positive for real GDP growth in the fourth quarter, adding 0.6 percentage point. Exports fell 1.3% annualized in the quarter, but imports fell 4.6%, offsetting this; lower imports add to GDP growth. Inventories added 1.5 percentage point to GDP growth in the fourth quarter, after subtracting from GDP growth in the second and third quarters. Global trade flows will slow this year as central banks continue to raise policy rates to fight inflation. Trade will be a drag on economic growth in the near term due to a weaker growth overseas.