It was a light week for U.S. economic data but most of the new data that we did see was positive, despite the ongoing slow-motion train wreck in Europe. U.S. international trade for September showed a narrowing trade gap, down to -$43.1 billion, while most (us included) thought the gap would widen. The good news on trade came from an uptick in goods exports, which gained $2.6 billion for the month. Total exports, including services, were up $2.5 billion, while total imports gained $0.8 billion. The narrower-than-expected September trade gap implies a net upward revision to 2011Q3 GDP, everything else equal. That is the good news. Unfortunately all else may not be equal. We expect to see a downward revision to the final inventory data for Q3 that could leave the final estimate of Q3 GDP growth about where it is now, at 2.5 percent. Also, given that one-fifth of our trade in goods is with Europe, a European recession and a weaker euro/more expensive dollar suggest that our trade balance with Europe as a whole will tend to be a drag on U.S. GDP through the first half of 2012. The September Job Opening and Labor Turnover Survey (JOLTS) showed an uptick in the job openings rate for September. Also, initial claims for unemployment insurance for the week ending November 5 dropped by 10,000 to hit 390,000. It would be more good news to see an ongoing decline in initial claims. If we take the JOLTS data, UI claims and the October household employment survey together, we start to see some evidence of improving labor market conditions that the payroll employment survey may not be picking up. The European situation looks worse this week as Italy wilts under the white-hot spotlight of global bond markets. Yields on Italian sovereign bonds have spiked and liquidity in the secondary market for Italian bonds has evaporated. Still Italy is not Greece. Italy has a larger and more diversified economy. They do a little better at collecting taxes than do the Greeks. They export things. Perhaps the ouster of George Papandreou as Greek Prime Minister and the expected ouster of Silvio Berlusconi as the Italian Prime Minister represent the Bear-Stearns and Lehman moments of European politics. After all, it is not strictly a banking problem plaguing Europe, but more of a political problem.
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