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By Jason Simpkins
A sharp decrease in consumer spending and plunging oil prices drove the U.S. trade deficit to a five-year low in November. But even though a shrinking trade deficit, at face value, is good news for the United States, it is still evidence of an economy in dire straits.
The monetary difference between imports and exports shrank 28.7% to $40.4 billion in November from $56.7 billion in October from. The total value of U.S. exports fell by $8.7 billion, or 5.8%, between October and November, but that decline was more than compensated for by a $25 billion, or 12%, decline in imports.
A sharp drop in petroleum imports – which tumbled 36.5% to $23.6 billion – contributed greatly to the decline. The volume of crude oil imports declined by 1.7 million barrels per day, and oil prices fell at an even faster rate.
After peaking at an all-time high of $133 per barrel in July, the monthly average price of oil was $66.72 a barrel in November. The average cost of West Texas Intermediate (WTI) crude fell even further, to $41 a barrel, in December. The average price of imported oil tumbled to $25.30 a barrel.
"The beauty part is that the trade deficit will shrink as much in the next couple of months because oil prices fell at a pretty constant rate," said Christopher Low, chief economist at FTN Financial, told Reuters.
The trade imbalance with China shrank 17.5% to $23.1 billion – the smallest deficit since June. That still accounts for more than half the overall monthly deficit, however.
Still, many analysts point out that even though the shrinking trade deficit has its merits, it is still indicative of an enormous plunge in consumer spending.
"It really says the wolf is at the door. Americans aren't buying anything," said Ed Gresser, director of the Progressive Policy Institute's trade office. "The problem isn't competition, but lack of demand for anybody's product."
News and Related Story Notes:
Trade Deficit Grows, Despite Record Decline in Oil Prices