U.S. Trade Report Increases Probability Of GDP Downward Revision

The U.S. trade deficit in December was much bigger than most analysts (though not me) and the BEA had expected when calculating fourth quarter GDP. As a result, the fourth quarter trade deficit rose to $109.7 billion, up from $97.3 billion in the third quarter. That implies that trade statistically reduced GDP by about 1.5 percentage points in terms of trade adjusted terms. Because almost the entire increase can be attributed to higher increases in import prices than export prices, the drag on the headline number is likely to be closer to zero. However, that compares with the 0.5% contribution in the initial report.

This means that it is likely, but not entirely certain (because other components may be revised with the opposite effect. But it is also possible that their revisions might have the same effect. The inventory number for example will also likely be revised down), that the GDP number will be downwardly revised.