Comerica Economic Weekly

The U.S. international trade gap widened in November to -$47.8 billion as higher prices for crude oil pushed imports up while exports cooled down. Exports dipped by $1.5 billion for the month, with weaker sales of industrial supplies and materials.  Total imports in November increased by $2.9 billion as petroleum imports increased by $3.7 billion. In the November international trade report we see some indications that recession in Europe is starting to drag on U.S. exports. Recession looks likely for most of the 17 European Union member countries as industrial production for the entire EU declined by 0.1 percent in November. The year-over-year percent change in U.S. exports to the European Union shows a cyclical pattern that is heading downward (see graph). Trade now looks set to be a slightly bigger drag on 2011Q4 GDP growth than first estimated. Weaker net trade in 2011Q4, along with weaker than expected retail sales in December tempers some of the upside risk for 2011Q4 GDP. Real GDP growth for the last quarter of 2011 now looks like it will be in the range of 3.0 to 3.5 percent. Consumers felt better about the economy in early January, according to the University of Michigan’s consumer sentiment index, which increased from 69.9 in December to now 74.0.  The index has increased for five consecutive months, following the overall uptrend in equity prices since the mid-summer reset last year. Consumer confidence does not equal consumer spending, but an uptick in confidence accompanied by improving labor markets and flattish inflation is a healthy combination. Retail spending gained a weak 0.1 percent in December. This disappointing data point was somewhat counterbalanced by an upward revision to November retail sales which now shows a 0.4 percent increase, above the previously reported 0.2 percent gain. Retail sales of autos gained 1.5 percent. Non-auto retail sales declined by 0.2 percent in December, dragged down by falling gasoline prices and also by the “Apple Effect.” Electronics and appliance store sales sunk by 3.9 percent in December, perhaps representing a trough in demand after the launch of Apple’s iPhone 4S in October. In October electronics store sales gained a strong 2.4 percent. Overall, it was a mixed retail sales report with as much good news as bad. With gasoline prices rising in January and some balancing out of electronics and appliance sales, there is reason to expect that we will be back on track for a moderate gain to retail sales for the start of 2012. Also, keep in mind that the “Superbowl Effect” is just around the corner. Television sales may take up the slack, especially if the teams playing represent popular markets. The mixed December retail sales data is a reminder that consumers cannot, by themselves, lead the economic expansion. Ongoing job creation, accompanied by gains in real disposable income, is necessary to keep the drive alive. Initial claims for unemployment insurance unexpectedly jumped by 24,000, back to 399,000 for the week ending January 7. Claims data around the winter holidays can get squirrelly, so one data point does not make a trend. Job openings for November ticked down, but the trend is positive.

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