The US goods deficit widened more than expected in December, reaching $90.3 billion, larger than Econoday's consensus estimate of an $88.5 billion gap. Imports recovered 1.9 percent after dropping 7.6 percent in November, while exports decreased an additional 1.6 percent after falling 2.8 percent the previous month.

The decline in exports was led by a 1.7 percent contraction in consumer goods and a 5.1 percent decrease in industrial supplies, while other major categories posted gains, led by the auto sector (2.2 percent) and food, feeds and beverages (5.0 percent).

The auto sector was also a key positive contributor to imports, with a 9.4 percent advance on the month undoing the 9.2 percent drop in November. Imports of consumer goods rose 6.6 percent and"other goods" 5.0 percent. By contrast, capital goods edged down a further 0.3 percent in December and industrial goods fell 4.1 percent.

The US goods deficit (Census basis) is expected to widen by nearly $6 billion in December to $88.5 billion after narrowing by nearly $16 billion in November, a very big move.

This monthly report offers advance import and export data on the goods components of the monthly trade report. Goods make up roughly two-thirds of the nation's exports and roughly three-quarters of imports.

Note that data in the advance goods report are accounted for on a census basis and can differ slightly from subsequent data in the international trade report where goods data are accounted for on a balance of payment basis to adjust for changes in cross-border ownership.

Changes in the levels of imports and exports, along with the difference between the two (the trade balance), are valuable gauges of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the dollar in the foreign exchange market.

Imports indicate demand for foreign goods here in the United States. Exports show foreign demand for U.S. goods. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies.

Market reaction to this report is complex. Typically, the smaller the trade deficit, the more bullish it is for the dollar. Also, stronger exports are bullish for corporate earnings and the stock market. Like most economic indicators, the trade balance is subject to substantial monthly variability, especially when oil prices change.

It is also useful to examine the trend growth rates for exports and imports separately because they can deviate significantly. Trends in export activity reflect both the competitive position of American industry and the strength of domestic and foreign economic activity. U.S. exports will grow when: 1) U.S. product prices are lower than foreign product prices; 2) the value of the dollar is relatively weaker than that of foreign currencies; 3) foreign economies are growing rapidly.

Imports will increase when: 1) foreign product prices are lower than prices of domestically-produced goods; 2) the value of the dollar is stronger than that of other currencies; 3) domestic demand for goods and services is robust.