Tags: trade | deficit | jobless | claims

Economy Can Grow at a Moderate Pace if We Keep Selling Goods Globally

Thursday, 09 Aug 2012 10:59 AM

INDICATOR: June Trade Deficit/Weekly Unemployment Claims

KEY DATA: Trade Deficit: $42.9 (Down $5.1 billion); Exports: Up $1.7 billion; Imports: Down $3.5 billion/Unemployment Claims: 361,000 (Down 6,000)

IN A NUTSHELL: “As long as we can keep selling more of our goods across the world, the economy can grow at a moderate pace.”

WHAT IT MEANS: Policymakers and politicians have finally recognized that the U.S. economy must not simply be a vacuum for goods produced around the globe, but we should also ship products to other countries.

In June, despite all the craziness in Europe and the slowdowns in Asia, U.S. exports managed to increase. We shipped more of just about everything except food. And the drought might hurt agricultural exports going forward.

We even upped our sales to Europe, though we should not expect that to continue.

On the other hand, our imports fell, led by a huge drop in petroleum products. The decline in prices helped a lot, but there was also a fall off in the number of barrels used. Adjusting for costs, the petroleum trade deficit, which also includes our exports (which were up!), actually narrowed.

However, our purchases of consumer goods, food and capital goods were also off, which might reflect cautious firms that don’t want to have lots of goods in their warehouses if the economy falters.

The increase in exports and decline in imports led to a large narrowing in the trade deficit. This has real implications for the second-quarter gross domestic product numbers, where the trade deficit was assumed to have widened. That no longer seems to be the case and we could see a significant upward revision to growth as a consequence.

Another good bit of news was the surprising decline in the unemployment claims number. We have reached a level that is consistent with monthly job gains of at least 150,000 to 175,000.

MARKETS AND FED POLICY IMPLICATIONS: It was really good to see exports continuing to rise, even if that trend is tenuous.

The drop in oil prices reminds us that lessening our dependence on foreign energy supplies would keep a huge amount of money in this country. The question is where we go from here. I worry that with energy prices rising, the deficit will probably start widening again, which is bad for growth.

Still, for me the weekly claims data were the real eye opener. It was assumed that once the vehicle-sector volatility was unwound, these numbers would rise. That they are still falling points to firming labor market conditions. Indeed, it seems likely that we will be able to replicate the job growth numbers posted in July, and maybe even improve on them if claims continue to decline.

That should make investors happy, though they have been pretty upbeat the past couple of weeks anyway. It also lessens the need for the Federal Reserve to even consider a third round of quantitative easing, which is being begged for by Wall Street but viewed as a waste of time by most everyone else.

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2012-59-09
Thursday, 09 Aug 2012 10:59 AM
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