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Larger US Trade Deficit to Weigh on Q4 GDP Estimates

By Marc Chandler

The November US trade deficit widened sharply and this will likely prompt economists to cut estimates of Q4 GDP.  The first estimate is to be released at the end of the month.  The pace of growth had appeared to be about half the pace of the 3.1% rate seen in Q3.  Today’s report risks even slower growth.  The real deficit, which adjusts for prices, widened to almost $52 bln from $46 bln.

Exports increased by 1%, led by autos, parts and telecom equipment.  Imports jumped 3.8%, the most in seven months. Ironically it may seem, imports of  autos and auto parts rose by $1.5 bln and cell phone imports rose $1.8 bln. These two sectors accounted for about a third of dollar rise in imports.

The data may have been skewed by the port disruptions caused by both the labor dispute and super storm Sandy.

The euro had already broken above the $1.33 cap before the worse than expected trade figures were released.  Stop loss buying saw the euro move to a high just above $1.3350.  The consolidative tone in Asia and Europe ended abruptly with the return of North American participants.  The next important objective is near $1.35. Sterling recovered from decline seen after the disappointing industrial production figures out earlier, but like most other currencies, cannot keep pace with the flows into the euro.

Separately Canada reported a trade deficit 3x greater than the market expected at C$1.96 bln and the Oct deficit was revised to show a C$0.55 bln deficit instead of a C$0.17 bln deficit. This also does not bode well for Canada’s Q4 GDP. Nevertheless, the Canadian dollar is the best performing within the dollar-bloc today. Typically, in a soft US dollar environment, the Canadian dollar lags behind the other majors.

Marc Chandler

About 

Marc Chandler joined Brown Brothers Harriman in October 2005 as the global head of currency strategy. Previously he was the chief currency strategist for HSBC Bank USA and Mellon Bank. In addition to frequently providing insight into the developments of the day to newspapers and news wires, Chandler's essays have been published in the Financial Times, Barron's, Euromoney, Corporate Finance, and Foreign Affairs. Marc appears often on business television and is a regular guest on CNBC and writes a blog called Marc to Market. Follow him on twitter.