Friday, May 9, 2008

March Trade Deficit Reflects 2 Bad Trends

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The one saving grace of this economy has been exports - the "weak dollar" friends love to point to exports even though they make up a minority of our economy nowadays (versus say the 1970s). Today's Trade Deficit numbers reflect 2 troubling trends - one expected (lower imports) and one not so much (lower exports).

We can understand the lower imports - as the dollar weakens it makes our goods cheaper for the rest of the world but it makes goods more expensive for our own citizenry. Combine that with all the ills facing the populace and you can see demand destruction (price points reaching levels where demand drops) happening. On the other hand, the reduction in exports strikes me as troubling - I am not sure what to pin it on... my first thought is weakness is now finally spreading globally, especially Western Europe. To be fair, the exports are coming of an all time high last month. We'll see next month if this is a new trend, or a blip. Now Wall Street might not care about the consumers here in the US, but if our exporters start having trouble - then they are going to have to take notice of that (some day).

Conclusion: Thankfully this shall all pass in (say it with me) "6 months" and things will be booming by year end. The recession that never happened, will be over. Even though it never started. Book it Dan-o.
  • The U.S. trade deficit narrowed sharply in March as demand for imports fell by the largest amount since the last recession was ending.
  • The smaller deficit reflected spreading weakness in the U.S. economy, which cut demand for imports by 2.9 percent, the largest one-month decline since December 2001, one month after the last recession ended.
  • The decline, which pushed imports down to $206.7 billion, was led by a 5.9 percent decrease in America's foreign oil bill. The amount of petroleum fell as the average price for crude oil jumped to an all-time high. Imports of autos and a wide variety of other consumer goods from furniture to toys and clothing also fell, reflecting the hard economic times facing U.S. consumers.
  • Exports, which have been one of the few strong points in this period of weakness, suffered a setback in March, falling to $148.5 billion, still the second highest level on record but down 1.7 percent from the all-time high set in February. Sales of commercial airliners, cars, computers and machinery were all down.
  • The politically sensitive deficit with China dropped by 12.4 percent to $16.1 billion, the smallest level in two years, as U.S. exports to China climbed to the second highest level on record, led by sales of medical testing equipment and computer chips. At the same time, imports of Chinese products dropped sharply, reflecting lower demand for cloths, textiles and toys.

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