The strength in the economy was underscored by other data on Tuesday showing activity in the vast services sector picking up in December. But services industries reported a moderation in growth in new orders and hiring. That is in line with expectations that economic growth would slow in 2020, as the stimulus from 2018 tax cuts fades.
The Commerce Department said the trade deficit decreased 8.2% to US$43.1 billion, the smallest since October 2016. The percentage drop was the largest since January.
The trade deficit narrowed 0.7% through November and is on track to record its first annual decline since 2013. While the shrinking trade bill should provide a boost to gross domestic product in the fourth quarter, falling consumer goods imports also suggest a cooling in domestic demand.
Data for October was revised to show the trade gap declining to US$46.9 billion, instead of the previously reported US$47.2 billion. Economists polled by Reuters had forecast the trade gap narrowing to US$43.8 billion in November.
The goods trade deficit with China, the focus of the White House's "America First" agenda tumbled 15.7% to US$26.4 billion, with imports dropping 9.2% and exports jumping 13.7%. The goods trade gap with the European Union fell 20.2% to US$13.1 billion.
The United States and China are embroiled in a bruising trade war, and Washington has also tussled with other trading partners, including the European Union, Brazil and Argentina, accusing them of devaluing their currencies at the expense of U.S. manufacturers.
Though Washington and Beijing in December hammered out a "Phase 1" trade deal, considerable confusion remains about the details of the agreement. President Donald Trump said last Tuesday that the partial deal would be signed on Jan 15 at the White House.
The 18-month-long U.S.-China trade war has undermined business investment, which together with slowing growth overseas have led to a recession in manufacturing. Economists expect manufacturing to continue to struggle without a complete rolling back of tariffs.
In a separate report on Tuesday, the Institute for Supply Management (ISM) said its non-manufacturing activity index rose to a reading of 55.0 last month from 53.9 in November. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.
The report came on the heels of a survey from the ISM last week, showing its measure of national factory activity dropping in December to its lowest level since June 2009. The index has contracted for five straight months.
Economists polled by Reuters had forecast the services index rising to a reading of 54.5 in December. The survey's measures for new orders and employment slipped.
The dollar rose against a basket of currencies. U.S. Treasury prices were higher, while stocks in Wall Street fell.
Weak consumer goods imports
When adjusted for inflation, the goods trade deficit decreased US$3.7 billion to US$75.3 billion in November, the smallest since March 2017. The so-called real trade deficit so far in the fourth quarter is below the average for the July-September period.
Economists expect trade will add at least 1.5 percentage points to GDP growth in the fourth quarter, after being a drag for two straight quarters. The boost from trade is, however, expected to be partially offset by a moderation in the pace of inventory accumulation.
The Atlanta Federal Reserve is forecasting GDP increasing at a 2.3% annualized rate in the fourth quarter. The economy grew at a 2.1% pace in the third quarter.
In November, goods imports dropped 1.4% to US$201.1 billion, declining for a third straight month. Consumer goods imports fell US$1.0 billion, pulled down by declines in cellphones and other household items, and artwork and other collectibles.
Economists believe consumer goods imports were weighed down by a 15% tariff on US$110 billion worth of Chinese goods that came into effect on Sept 1. They also say anticipation that the "Phase 1" trade agreement would roll back the tariffs could have encouraged companies to hold off on imports. A rebound in imports is expected.
The drop in consumer goods imports points to a slower pace of consumer spending in the October-December quarter, after two straight quarters of brisk growth.
Capital goods imports dropped US$1.2 billion in November, reflecting decreases in civilian aircraft and computers. Crude oil imports tumbled to 166.4 million barrels, the lowest since February 1992, from 188.3 million barrels in October. Motor vehicle and parts imports, however, rose US$1.1 billion.
Goods exports rose 0.7% to US$137.2 billion in November. They were boosted by a US$0.6 billion increase in shipments of capital goods. Consumer goods exports advanced US$0.5 billion.
The goods trade deficit in November was the smallest since October 2016. The petroleum surplus of US$0.8 billion in November was the highest on record.