Trade Deficit Drops Sharply in July
In a bit of good news for the US economy we saw the trade deficit narrowed to $44.8 billion for the month of July almost $6 billion lower than forecasts by economists. The decline in the deficit was led by a jump in exports (+3.6%) while imports (-0.2%) were pretty much flat. The figure can mean that trade acts as a positive contributor to GDP in the third quarter. It's therefore a good report among rather gloomy US data stream.
From Bloomberg: The U.S. trade deficit narrowed more than forecast in July as exports climbed to a record, offering a bright spot for an economy at risk of a bigger slowdown.
The gap shrank 13.1 percent, the most since February 2009, to $44.8 billion from a revised $51.6 billion shortfall in June, Commerce Department figures showed today in Washington. Exports rose as companies shipped more capital goods and automobiles overseas.
Exports increased 3.6 percent to $178 billion in July, boosted by sales of telecommunications equipment, civilian aircraft, autos and industrial engines. U.S. shipments of capital goods and autos and parts to overseas customers were the highest on record. Imports fell 0.2 percent to $222.8 billion from $223.4 billion in the prior month.
Jobless Claims Unexpectedly Climb
Jobless claims continue to hover above the 400K level. This level is important because when claims are below 400K its consistent with the economy adding enough jobs to meet the demand of new entrants into the labor force - around 150K. In August the economy added zero jobs, and with the economy slowing the prospect for growth to muddle along is looking more likely, with an outside chance that the economy falls back into recession. Stagnant gains in the labor market will mean consumers are reticent to go out and spend their money, which means they will be prudent with their purchases, which will keep the economy going at only a modest pace in the 2nd half of the year.
From Reuters: The number of Americans filing new claims for jobless benefits rose unexpectedly last week, further evidence of an anemic employment picture just hours before President Barack Obama unveils a plan on job creation in a major address to Congress.
Applications for unemployment benefits rose to 414,000 in the week ending September 3 from an upwardly revised 412,000 the prior week, the Labor Department said on Thursday. Wall Street analysts had been looking for a dip to 405,000.The four-week moving average of claims, which smooths out volatility, rose to 414,750 from 411,000 the prior week.
Fundamental Impact: The stronger trade data should help increase the projections for GDP growth for the US in the third quarter. The trade data showed record amounts of exports to South and Central America - which is a good sign that that the emerging markets in the Western hemisphere are faring well in 2011. That could be an avenue of growth for the US trade sector.
While the trade data was a ray of sun through the gloomy cloud of data of late, the economy continues to suffer from a stagnant labor market and we had further evidence of that in today's jobless claims report. We'll see if we can have some momentum following Obama's address, especially if politicians come together to approve the plan in a swift manner. It would be quite tone deaf for politicians to ignore the unemployment problem.
The weaker jobs report from today shows a trend of stabilization in jobless claims above the 400K level which is to high to bring down the unemployment rate. That could increase pressure on the FOMC to do some kind of easing to try and help stimulate the economy. However, the first two rounds of easing have not necessarily brought down the unemployment rate yet anyway, so that may not be the best avenue here.
Therefore it may be actually up to the politicians to do their job and help the country forward by implementing swift policies that can get at the unemployment structural issues. No amount of austerity will help get the US out of its fiscal situation if the unemployed can't find jobs and consumers are too concerned about the economy to go out and spend their money.
Overall what Bernanke and Obama say today will be more important than these individual releases.
Chief Market Analyst