November International Trade, January Consumer Sentiment

                                               Trade Gap Widens on Higher Oil Prices

  • The U.S. International Trade gap widened in November to -$47.8 billion.
  • Exports to Europe are showing signs of weakening. Exports to the EU dipped by $1.4 billion in November.
  • The wider trade gap in November suggests that trade will be a drag on 2011Q4 GDP.
  • The University of Michigan’s Consumer Sentiment Index for January increased, as expected, to 74.0.

The U.S. international trade gap widened in November to -$47.8 billion as higher prices for crude oil pushed commodity imports up while total 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. Net of petroleum, the balance of trade in goods widened by a smaller $1.6 billion. Also in today’s international trade report we see some indications that recession in Europe is starting to drag on U.S. exports. Recession looks increasingly likely for most of the 17 European Union member countries. Industrial production for the EU declined by 0.1 percent in November. On a non-seasonally adjusted basis U.S. exports to the European Union dipped by $1.4 billion in November. This is certainly not evidence of a trend, but it does raise a cautionary flag. When we look at the year-over-year percent change in U.S. exports to the European Union (which removes seasonality) we see a cyclical pattern that is heading downward (see graph below). 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.

Market Reaction: U.S. equities opened with losses as credit rating downgrades to European governments appear imminent. Treasury yields are up. Oil is down to $98.39/barrel. The dollar is up against the yen and the euro.

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