US: Net exports look to be a considerable drag on fourth-quarter growth – Wells Fargo

Data released on Tuesday showed the US trade deficit widened in October. Analysts at Wells Fargo point out exports were held back by a decline in natural gas specifically, but there were signs of slower growth beginning to bite, which they expect to remain a headwind for exports into next year. They warn net exports now look to be a considerable drag on fourth-quarter growth.

Key Quotes: 

“The U.S. trade deficit widened for the second straight month to -$78.2 billion in October as import growth (+$2.2 billion) outpaced exports (-$1.9 billion). Despite the sharp widening the past two months, the deficit still sits smaller in October than the average that prevailed over the past 12 months.” 

“The October data thus position net exports to be a considerable drag on fourth quarter growth. Exports will remain under pressure as there is a clear sign of economic deceleration abroad and a stronger U.S. dollar is making U.S. goods more expensive and less competitive in global markets. At the same time, imports should remain supported into next year amid further normalization in supply chains and continued domestic demand for end product.”

“These dynamics will likely cause net exports to remain a drag on headline growth for a few quarters. But as the economy falls into a mild recession by the second half of next year, net exports are set to boost growth as demand for imports dries up.”