The U.S. trade deficit increased in January, a sign that consumer spending is strong.
The goods and services deficit increased by $3.3 billion from January, the Census Bureau reported Thursday, surpassing economists’ predictions. Imports rose by $3.6 billion, far surpassing the $0.3 billion increase in exports.
“The import surge suggests that the economy has run hotter than expected,” Christopher Low, Chief Economist of FHN Financial said. “ Companies set out to reduce inventory but sold more goods than they anticipated.”
Despite the unexpected increases experts aren’t worried because the deficit narrowed year-over-year and consumer spending is strong. The overall narrowing of the trade deficit of goods and services by $2.9 billion from January of 2023 offers a more positive indication of a healing economy.
The deficit doesn’t subtract from the total value of goods and services–rising imports reflects strengths in the economy while the smaller increase in exports shows weaknesses in parts of the economy such as manufacturing. The most important factor that the increase in imports suggests is that consumer spending is strong. “What it does tell you is that the consumer is driving this economy,” said Steven Ricchiuto, Chief Economist of Mizuho Securities.
One reason for the multi-billion dollar increase in imports is domestic production slowdowns. with the wave of trends in the labor market: downsizing and strikes in industries such as auto and entertainment, there are fewer domestic goods in the marketplace. “The net result is we have to import those consumer goods from overseas,” Ricchiuto said. January marked the highest imports of automotive vehicles, parts, and engines at $40.9 billion.
One sign of the strength of the consumer economy: American tourists have more money to spend abroad than their foreign counterparts and are heading overseas. That counts as an import of a foreign service because it’s U.S. earned dollars being spent overseas.
Travelnista on The Move LLC is seeing the increased interest in international tourism first-hand. The boutique travel agency is seeing increased inquiries about travel to the Caribbean and Turks and Caicos.
Servicing upwards of 200 clients a year to luxury experience there are a few months when business is booming: December and January. “A lot of our clients travel from April to August,” said Jacoya Miller, the CEO and founder of Travelnista on the move.
Many travel blogs recommend booking trips approximately six months in advance. “The best time to start planning are during the months of December to February,” Miller continued. “We receive a high volume of requests for quotes and bookings during this time as many individuals are planning in advance for their travel during the school breaks and major federal holidays.”
Foreign tourism to the U.S. also increased, according to the U.S. Travel Association. Amongst their January 2024 highlights was a year-over-year increase of 24%. This contributed to the slight increase in exports as foreign dollars were being spent in the U.S. economy.
“You can’t just unilaterally say that the trade deficit went up so it subtracts from GDP,” Ricchiuto said. It is imperative to consider what is causing the deficit to widen. “That’s the key and it’s going up because consumer spending is strong.”