Sharp Drop in Exports and Imports Reflects Global Recession
The trade deficit of the U.S. economy narrowed slightly to $39.9 billion in December. Both exports (-6.0%) and imports (-5.5%) of goods and services fell in December. The improvement in the trade gap was smaller than the assumption incorporated in the advance estimate of fourth quarter real GDP (-3.8%). The trade deficit of goods, after adjusting for inflation, was wider in December compared with November ($43.3 billion vs. $40.1 billion in November). The headline GDP estimate is most likely to be revised down to a nearly 5.0% drop to reflect this discrepancy and that of inventories and construction outlays (net impact of both these components is also a weaker GDP), assuming insignificant revisions of retail sales during November and December (to be published on February 12).
After adjusting for inflation, exports of goods declined 6.0% in December despite a sharp increase in exports of civilian aircraft. Real exports of goods dropped at an annual rate of 34.9% in the fourth quarter, which points to the severity and widespread nature of the current economic crisis.
Imports of goods, after adjusting for inflation, moved down at an annual rate of 20% in the fourth quarter. Imports excluding petroleum declined at a faster pace in the fourth quarter (-30%, see chart 3) compared with overall imports because petroleum imports rose nearly 47%, due to lower prices of imported oil.
In 2008, the trade deficit of goods narrowed significantly in 2008 ($534.3 billion) compared with 2007 ($654.8 billion) and is close to the level seen in 2002 (see chart 4).
The trade deficit widened vis-à-vis Mexico ($4.0 billion vs. $3.5 billion in November), Japan ($5.3 billion vs. $5.0 billion in November) and the Euro-area ($5.7 billion vs. $5.6 billion in November) but narrowed vis-à-vis China ($19.9 billion vs. $23.1 billion in November) and Canada ($2.8 billion vs. $3.3 billion in November) during December. A smaller trade deficit with China is due to shutdowns in business related to the Chinese New Year.
Housing Market Update – Applications for Both Refinance and Purchase Decline
The Purchase Index of the Mortgage Bankers Association fell to 235.9 during the week ended February 6 from 261.4 in the prior week. The Purchase Index is at its lowest level since the end of 2000 (see chart 5).
The Refinance Index fell sharply to 2722.7 from 3906.3 in the prior week (see chart 6). The 30-year fixed rate mortgage has risen to 5.19% during the week ended February 6 from a low of 4.89% in the week ended January 9 (see chart 7). Although the Housing Affordability Index (see chart 8) is at a record high, demand for homes will gather momentum only after employment conditions have improved.
