Significant Drop in Consumer Sentiment Will be Watched Closely
The University of Michigan Consumer Sentiment Index moved down to 75.0 in the early-November survey from 80.9 in October. This reading is the lowest since October 1992, excluding the Katrina and Iraq war declaration episodes (see chart 1). The Current Economic Conditions Index fell to 91.0 from 97.6 in October. The Expectations Index declined to 64.7, the lowest since February 1992, excluding the Katrina-related drop. The upward trend of oil prices and the housing market woes have both clearly played a role in recent declines of the consumer confidence measures.
Trade Less of a Drag in Q3
The international trade deficit narrowed slightly to $56.5 billion in September from $56.8 billion in August. The inflation adjusted trade deficit of goods was virtually unchanged. The downward revision of the August trade gap and the reading of September suggest a further narrowing in the trade gap compared with the estimate in the advance third quarter GDP report, implying a headline GDP higher than 3.9%, assuming revisions to retail sales and inventories are not offsets.
The strength in exports remains noteworthy, with the expectation that exports will continue to provide a lift to headline GDP going forward because of a weak dollar and growing trading partners.
In September, the trade deficit vis-à-vis China widened to $23.7 billion vs. $22.5 billion in August. The trade deficit vis-à-vis the Euro area, Mexico, Canada, and Japan narrowed noticeably in September.
