Trade Deficit Drops to Least Terrible Level since 2009, upon which Atlanta Fed GDP
Now Doubles Q4 GDP Forecast to +5.4%
by Wolf Richter • Jan 8, 2026 • 10 Comments
The GDPNow algo is to be taken with a teaspoon of salt, but it shows that a big improvement of the trade deficit pushes up GDP growth.
By Wolf Richter for WOLF STREET.
The US trade deficit in goods and services dramatically improved in October, with the negative trade balance improving by $19 billion in October, to $29 billion, the least terrible trade deficit since 2009, according to data from the Census Bureau today (all figures are seasonally adjusted, but not adjusted for price changes).
The huge US trade deficit has for decades been one of the factors weighing on economic growth. The trade deficit (negative “net exports”) reduces GDP growth. October’s much smaller trade deficit will have a positive impact on Q4 GDP growth. Conversely, the huge spike in the trade deficit in early 2025 was a big factor in pushing GDP growth into the negative for Q1 2025.
Exports of goods and services in October rose (improved) by $8 billion from September, to $302 billion, while imports of goods and services fell (improved) by $11 billion to $331 billion.
This improvement in the trade deficit in October and prior months comes after the huge spike of the trade deficit in January through March 2025.
The spike in Q1 was caused by:
- Efforts to frontrun the tariffs, especially with pharma products.
- Massive imports of nonmonetary gold (gold that investors buy).
But trade of nonmonetary gold is considered an investment, such as stocks, and is not included in GDP, though it is included in the raw trade data here under “industrial supplies.”
So the gold imports didn’t impact Q1 2025 GDP. And gold exports, currently running at a high rate, won’t impact Q4 2025 GDP either.
Year-to-date, the trade deficit was $783 billion, still $56 billion worse than a year earlier, after the huge spike in the first three months of the year, including the massive imports of nonmonetary gold at the time.
The trade deficit in goods improved by $19 billion in October from September, to $59 billion, the least terrible goods deficit since March 2016, seasonally adjusted, but not adjusted for price changes.
Exports of goods increased (improved) by $7 billion to $196 billion. The increase in October was due to the surge in exports of nonmonetary gold, which won’t count in GDP
Imports of goods fell (improved) by $12 billion in October from September to $255 billion, with:
- Pharmaceutical products: -$14 billion
- Industrial supplies: -$3 billion, including -$1.3 billion nonmonetary gold, which won’t count in GDP
- Capital goods: +7 billion
Year-to-date, after the gigantic spike in January through March, the goods trade deficit was still $76 billion worse than a year ago.
The Atlanta Fed’s GDPNow, after taking in today’s trade data, doubled its forecast for Q4 GDP growth to +5.4% today, from +2.7% two days ago.
The GDPNow algo is to be taken with a teaspoon of salt, after the trade of nonmonetary gold blew it up in early 2025.
But this is the new and improved GDPNow, which is supposed to account for the gold trade properly – but maybe they didn’t get the new version right either.
No way that Q4 GDP growth will be 5.4%. But this is just the beginning of the delayed flow of Q4 data. The GDPNow algo takes in the data points of Q4 as they’re released, and so the GDPNow estimate for GDP growth in Q4 will change over the next six weeks.
The Bureau of Economic Analysis, which is in charge of the actual GDP calculations, will release its first estimate of Q4 GDP on February 20. That’s the figure that the Atlanta Fed’s GDPNow attempts to forecast.
But what the Atlanta Fed’s GDPNow algo does show is that a big improvement of the trade deficit pushes up GDP growth substantially.
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