The US trade deficit is at a five-year high

This morning data from the US Commerce Department showed the US trade deficit in January at its highest level since March 2012. The numbers were not unexpected as the $48.5 billion deficit was bang on economist estimates.

Why this matters: Trade is a big issue for the Trump Administration, especially as the trade gap cut 1.7% from GDP in the fourth quarter. It will be hard for the US economy to grow above 3%, as Trump wants, given the demographics and the Trump Administration’s desire to limit immigration with trade deficits subtracting that much from the statistical GDP measure.

And with the Fed clearly in a tightening mode, the prospect of a stronger dollar and larger trade deficits has increased. Yet, the larger deficit – combined with weak data on housing starts, consumption and construction spending suggest that, actually, the US economy may not re-accelerate as fast as the Fed anticipates. The wild card, then, is how the Trump Administration reacts to reign in this deficit.

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