Consumer confidence nearly hit a nearly two-decade high in November, according to figures posted by the Conference Board, a business research association. This may be due to a strong labor market, which is at its lowest unemployment rate in 17 years and shrinking. Rising home prices due to high demand and low stock may also promote economic growth.
36.3% of respondents said they believe jobs are plentiful, the highest since 2001, and 34.5% believe conditions are good for business. 22.2% are optimistic about the next six months, expecting even better business conditions. This uptick has also been documented by the University of Michigan's consumer sentiment index and the Bloomberg Consumer Comfort Index.
But is this optimism warranted? There are troubling signs on the horizon, including an increase of the U.S. trade gap.
According to the Commerce Department, the U.S. trade deficit widened in October to reach a 9-month high. It grew 8.6% to $48.7 billion, which, when adjusted for inflation, is $65.2 billion, above the Q3 average of $62 billion. This is a huge increase from January, and even from September, when the trade deficit reached $62.2 billion. Imports of goods and services are on the rise as the U.S. economy nears full employment, increasing by 1.6% in October to reach a record $244.6 billion. Crude oil accounts for much of this, rising by $1.5 billion as oil prices hit highs not seen since August 2015.
Trade experts do not consider deficits to be an accurate, holistic way of understanding trade relationships, and it does not necessarily correlate to a weak economy. Still, Trump has often complained about the trade deficit, blaming it for harming the U.S. manufacturing labor market and inhibiting economic growth. Trump has also accused U.S. trade partners of unfair practices. To combat the trade deficit, Trump has opened negotiations of the 1994 NAFTA agreement with Mexico and Canada, though those talks seem to have hit a wall. Trump has also opened dialogues on the topic of trade with individual nations, though those have yet to bear much fruit. And despite his efforts, imports from China and Mexico broke record highs in October, increasing 1.7% to reach $35.2 billion and 15.9% to hit $6.6 billion, respectively. Meanwhile, U.S. exports have remained stable since October, though they are up 5% overall this year.
If the deficit is not reined in in Q4, it could subtract from GDP. Shrinking inventories in both wholesale and retail may also contribute to "meaningful drags on growth," according to Daniel Silver, an economist at JPMorgan. This has caused forecasting firms to revise their expected growth estimates downward somewhat.