From Wolf Street, January 8:
The GDPNow algo is to be taken with a teaspoon of salt, but it shows that a big improvement of the trade deficit pushes up GDP growth.
The US trade deficit in goods and services dramatically improved in October, with the negative trade balance improving by $19 billion in October, to $29 billion, the least terrible trade deficit since 2009, according to data from the Census Bureau today (all figures are seasonally adjusted, but not adjusted for price changes).
The huge US trade deficit has for decades been one of the factors weighing on economic growth. The trade deficit (negative “net exports”) reduces GDP growth. October’s much smaller trade deficit will have a positive impact on Q4 GDP growth. Conversely, the huge spike in the trade deficit in early 2025 was a big factor in pushing GDP growth into the negative for Q1 2025.
Exports of goods and services in October rose (improved) by $8 billion from September, to $302 billion, while imports of goods and services fell (improved) by $11 billion to $331 billion.
This improvement in the trade deficit in October and prior months comes after the huge spike of the trade deficit in January through March 2025.
The spike in Q1 was caused by:
- Efforts to frontrun the tariffs, especially with pharma products.
- Massive imports of nonmonetary gold (gold that investors buy).
But trade of nonmonetary gold is considered an investment, such as stocks, and is not included in GDP, though it is included in the raw trade data here under “industrial supplies.”
So the gold imports didn’t impact Q1 2025 GDP. And gold exports, currently running at a high rate, won’t impact Q4 2025 GDP either.
Year-to-date, the trade deficit was $783 billion, still $56 billion worse than a year earlier, after the huge spike in the first three months of the year, including the massive imports of nonmonetary gold at the time....
....MUCH MORE, including discussion of the gold trade impact on prior reports and estimates.
