December International Trade, February UI Claims

                                           U.S. Labor Data So Far Resistant to Euro Drag

  • The U.S. International Trade gap widened in December to -$48.8 billion on strong import growth.
  • Merchandise exports to the Eurozone increased by $0.8 billion in December.
  • The December trade numbers imply a small upward revision to 2011Q4 GDP.
  • Initial Claims for Unemployment Insurance fell by 15,000 for the week ending February 4, to hit 358,000.

The U.S. international trade gap widened again in December to -$48.8 billion. Total imports increased by $3.0 billion while exports gained just $1.2 billion. The inflation-adjusted balance of trade in goods widened by $0.7 billion ($2005) in December, which implies a small upward revision to the first estimate of 2011Q4 real GDP growth rate of 2.8 percent, if everything else stays the same. There appears to be a disconnect in this month’s trade report, which shows exports of civilian aircraft declining in December despite strong reported overseas deliveries by Boeing. Perhaps we will see an adjustment next month. Merchandise exports to the Eurozone increased $0.8 billion in December, after contracting by $1.4 billion in November.  On a year-over-year basis the trend in trade with the Eurozone is still heading south. Increasing evidence of a moderate-to-hard recession in the southern tier of the Eurozone suggests that exports to the Eurozone will continue to trend down over the coming months. Scandinavia appears to be resistant to the euro-plague so far. Germany is the key to core European growth and may yet succumb to the recessionary downdraft coming from the periphery. Our February U.S. Economic forecast assumes a moderately widening trade gap through 2012, coming as a result of weaker global growth and a stronger dollar. This drag, combined with weak government spending, and less of a push from inventories (compared with 2011Q4) keeps overall real GDP growth positive but subdued in 2012H1, near a two percent rate.

Good news from labor data is extending into February as initial claims for unemployment insurance dipped by 15,000 for the week ending February 4, to hit 358,000. Initial claims below 360,000 are associated with monthly job gains in excess of 200,000. If we can maintain this pace through 2012, the economic landscape will feel progressively firmer. In our February U.S. forecast we have an average monthly job gain of 190,000 for 2012, so there is upside potential to the baseline forecast.

Market Reaction: U.S. equities opened with losses. Treasury yields are down at the long end of the yield curve. Oil is down to $97.80/barrel. The dollar is up against the yen and the euro.

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