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US economic indicators

Trade deficit is likely to have risen to about $60bn in January

Mon, Mar 10 2008, 10:40 GMT
by BHF-Bank Economics Department

BHF-Bank

• Import and consumer price increases will probably have been more moderate in Februar

• UMI’s preliminary March consumer sentiment could have fallen even lower

Wholesale inventories went up sharply by 1.1% mom in December, but we expect a much smaller increase of 0.5% mom in January. However, inventories of non-durable goods might have risen noticeably again due to high oil prices. Total business inventories could have gone up by 0.7% mom in January, as we already know that factory orders jumped by 1.3% mom. The build-up in inventories was probably involuntary.

The trade deficit is likely to have widened from $58.8bn to about $60.0bn in January: import prices went up significantly by 1.7% mom, mainly because of petroleum prices. Thus imports, which had fallen by 1.1% mom in December, could have rebounded somewhat due to higher and more expensive oil imports. However, domestic demand has been slowing down, which will have reduced the total rise. Furthermore, China’s trade surplus appears to have narrowed, which could also indicate a more moderate increase in imports. Given the dollar weakness, export activity might have remained lively, but after having increased by 1.5% mom in December, exports are likely to have slowed down somewhat.

The Congressional Budget Office (CBO) estimates that the budget deficit deteriorated significantly in February, from –$120bn last year to -$174bn. The main reason will have been a $43bn surge in outlays, although half of that increase will have been due to calendar effects, as 1 March fell on a weekend and payments had thus to be shifted into February. The total deficit after the first five months of the current fiscal year would already have reached $262bn, $100bn more than in the same period of the last fiscal year.

Retail sales rebounded somewhat by 0.3% mom in January, partially due to an unexpected rise in auto sales. However, we forecast that auto sales will have suffered a setback at the beginning of 2008, and as gasoline prices were more or less flat, they will not have boosted total sales this time. Apparel sales are also likely to have moderated after having jumped by 1.4% mom in January. All in all, consumers have become quite pessimistic, and this is likely to have dampened retail sales, which we forecast will have remained unchanged at best in February. This is also in line with the ISM non-manufacturing survey, which reported a significant drop in the retail business since the end of the holiday season. Moreover, the Beige Book described retail spending as downbeat, weak or having softened, and employment in the retail sector has fallen.

Initial jobless claims dropped by 24k to 351k in the week ending 1 March, but the 4-week moving average remained close to 360k. Due to the economic slowdown, we expect jobless claims to have risen closer to the 4-week moving average in the week ending 8 March.

After +1.7% mom, the rise in import prices is likely to have slowed down temporarily in February, as petroleum prices were lower in the first half of the month, which is the statistically relevant period. We expect import prices to have increased by 0.2% mom in February, only reducing the annual rate slightly to 13.6%. However, in March, petroleum prices will push the annual rate to a new record high.

The increase in consumer prices (CPI) could have slowed to 0.2% mom in February, after 0.4% mom the previous month. Gasoline prices were more or less stable, and food prices, which had gone up significantly by 0.7% mom in January, might have risen less. At 4.2%, CPI’s annual rate would remain almost as high as at the beginning of 2008. Core CPI could have also risen by 0.2% mom, reducing the annual rate slightly to 2.4%. That would still be uncomfortably high, but the Fed is focusing more on economic growth at present, as it is relying on slower growth having a dampening impact on inflation. The graph shows that inflation rates have gone down after recessions.

We forecast that the University of Michigan’s (UMI) preliminary March consumer sentiment will have fallen by almost 2 points to 69.0 – despite the final February figures and the weekly ABC consumer comfort poll having stabilized somewhat. At the beginning of March, oil prices jumped over $100 for the first time, and gasoline prices were also rising. Furthermore, private employment has been falling for three consecutive months, and stock prices have been also going down, aggravating the negative wealth effect of lower house prices.

• Download Full US Economic Indicators

Published on  Mon, Mar 10 2008, 11:33 GMT

Archive

• Durable goods orders: soft in June, transportation orders slowed
  Published On Mon, Jul 21 2008, 10:36 GMT
• PPI and CPI surge on energy in June, core rates remain moderate
  Published On Mon, Jul 14 2008, 12:06 GMT
• UMI consumer sentiment could remain at a long-term low in July
  Published On Tue, Jul 8 2008, 06:16 GMT
• June ISM indices are likely to have deteriorated
  Published On Mon, Jun 30 2008, 11:21 GMT
• June consumer confidence indices are likely to decline further from long-time lows
  Published On Mon, Jun 23 2008, 09:30 GMT

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