Is narrowing US trade deficit all good news?

The US trade deficit shrank unexpectedly in November, falling to a four-year low of $34.3bn from $39.3bn. This, says Capital Economics' Paul Ashworth, suggests that fourth-quarter GDP growth could turn out to be above three per cent annualised.

Exports saw an increase of 0.9 per cent, with imports falling 1.4 per cent. Around two-thirds of the decline can be explained by the sharp drop in the value of petroleum-related imports which, in turn, was driven by falls in both unit price and overall quantity.

But, Ashworth explains, while capital goods and motor vehicle imports went up, consumer goods imports actually contracted.

The research group had anticipated that already-reported strong domestic sales in November, evidenced by the strong gains in monthly real consumption, would have meant a corresponding surge in imports.

But the shrinking of consumer goods could see inventory numbers in November come out pretty weak.

Having said that, even a drag from inventories won't hamper the positive contribution from net external demand, says Ashworth - hence the anticipation of three per cent GDP growth.