Trade Gap Narrows, Q4 U.S. Data Continues to Improve
- The U.S. International Trade gap narrowed in October to -$43.5 billion; its fourth consecutive narrowing.
- Initial Claims for Unemployment Insurance fell by 23,000 down to 381,000 for the week ending Dec. 3.
- The Federal Reserve Bank of Kansas City’s Financial Stress Index fell in November; the first dip since May.
The U.S. international trade gap narrowed slightly in October to -$43.5 billion and September’s trade gap was revised out to -$44.2 billion. In October, imports declined by $2.2 billion while exports declined by $1.5 billion. The dips on both sides of the trade ledger fall within the range of typical monthly noise and do not show proof of deteriorating international trade due to a downshift in global demand. The inflation-adjusted trade gap in goods for October was below the average for the third quarter, pointing to a boost to GDP from trade in the current fourth quarter, if the trend continues. The total nominal trade gap for the U.S. has now narrowed for four consecutive months. The trade gap tends to widen during U.S. economic expansions as the demand for imports increases, but at least for the past four months, that pattern has not held. One interesting development is that the U.S. is now a net exporter of refined petroleum products and that has helped to keep the total petroleum trade gap in check. On an inflation-adjusted basis, the total balance of trade in petroleum has been on a narrowing trend since 2006. As a result, the total nominal trade balance is now less dependent on swings in petroleum and petroleum product prices. On a physical basis, we imported about one percent less crude oil this October than we did a year ago. Also, imports of fully assembled cars, which increased steadily over the previous two decades, have reset to a lower level since the Recession of 2008/09. Looking at the merchandise trade balance with Europe, there are no signs yet of a significant deterioration in U.S. exports to Europe.
U.S. labor market data is showing signs of improvement. Initial claims for unemployment insurance fell by a sizeable 23,000 for the week ending December 3, to hit a level of 381,000. Continuing claims fell sharply also, down by 174,000 for the week. The drop in continuing claims, in part due to the exhaustion of unemployment benefits, is an indicator of further declines in the unemployment rate. The Kansas City Financial Stress Index fell in November, its first monthly decline since last May. However, the series remains elevated at a level above normal, but also well below previous peaks.
Market Reaction: U.S. equities opened positively on the European news du jour. Treasury yields are up at the long end and down on the short end of the yield curve. Oil is up to $98.40/barrel. The dollar is up against the yen and down against the euro.