Implications: The trade deficit in goods and services shrunk to $63.2 billion in November as imports declined faster than exports.  However, we prefer to focus on the total volume of trade, imports plus exports, as it shows the extent of business and consumer interaction across the US border. This measure pulled back significantly in November, falling by $11.0 billion and is up only 0.2% from a year ago.  Exports are only up 0.4% versus a year ago, while imports are up 0.1%, consistent with our forecast that the US is headed toward a recession.  And while a recent surge in the federal budget deficit might have helped the US economy avoid recession in the short-term, this kind of artificial support can’t last.  Notably, there is a major shift going on in the pattern of US trade.  For 2023 through November, imports from China are down 21.2% year-to-date versus the same timeframe in 2022.  China used to be the top exporter to the US.  Now the top spot is held by Mexico, with China and Canada flip flopping month by month between second and third.  Meanwhile, daily freight rates have fallen rapidly and are back down to pre-COVID levels, or lower, as demand for shipping has stabilized.  This was confirmed by the New York Fed’s Global Supply Chain Pressure Index in November, with the index moving to positive territory, 0.13 standard deviations above the index’s historical average. Expect some temporary volatility into the new year though as Yemen’s Houthi rebels continue to deter container ships from transiting the Red Sea and Bab-el-Mandeb Strait, temporarily adding significantly to shipping costs.  Also in today’s report, the dollar value of US petroleum exports exceeding imports once again.  This marks the 21st consecutive month of the US being a net exporter of petroleum products.

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