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US economic indicators

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Trade balance (May): higher deficit mainly due to rising energy prices

Mon, Jul 6 2009, 09:49 GMT
by BHF-Bank Economics Department

BHF-Bank

• ISM non-manufacturing index (Jun): improving slightly but still in contraction zone

• Trade balance (May): higher deficit mainly due to rising energy prices

• UMI consumer sentiment (Jul): slight decline after four consecutive improvements

The ISM non-manufacturing index only rose marginally from 43.7 to 44.0 in May, and important subcomponents like business activity and new orders actually declined.
We thus forecast that the ISM non-manufacturing index will have only increased slightly again, to 44.5 in June, despite the fact that its manufacturing counterpart improved by two points to 44.8.

Consumer credit fell by almost $15bn on average in the last three months, as consumers are deleveraging and banks are still tightening credit conditions. Furthermore, as personal income is rising significantly because of fiscal measures, there is less need to pile on debt at present. We therefore predict that consumer credit will have gone down markedly again by about $12bn in May.

Initial jobless claims fell by 16k to 614k in the week ending 27 June. We expect jobless claims to have fallen again somewhat in the week ending 4 July, but this could be partly connected with the national holiday weekend (Independence Day). The 4-week moving average has been relatively stable for some weeks, fluctuating in a narrow range around 615k.

Wholesale inventories went down by almost 5% in the last three months, and the depletion of inventories accounted for 40% of the GDP decline in the first quarter. The inventory correction will have continued in Q2, but possibly at a slower pace, so that inventories could have contributed positively to GDP in the 2nd quarter. We forecast that wholesale inventories will have decreased by about 1.0% mom in May.

After having widened slightly in April, the trade deficit is likely to have risen again due to higher energy prices.
We expect it to have increased by $1.8bn to $31bn in May. Both exports and imports will have fallen noticeably again due to weak global demand and automobile factory shutdowns.

By February, import prices had fallen by almost 25% from their peak in July 2008. Since then, however, they have risen each month by more than 1%, as commodity prices are trending upwards. In the statistically relevant first third of the month, oil prices increased by about 25% mom, and the ISM prices paid component jumped to 50.
Thus total import prices could have gone up by 2.5% mom in June. At –18.0%, the annual rate would nevertheless be deeper in negative territory again.

The Conference Board’s consumer confidence deteriorated markedly, but the University of Michigan’s (UMI) consumer sentiment increased again in June, albeit only modestly. However, expectations were already slightly lower than in May. In addition, the ABC consumer comfort poll is on a relatively low level, gasoline prices have risen by almost $1 per gallon since the beginning of the year, and the stock market recovery has stalled. Thus we predict that UMI’s preliminary July consumer sentiment will have fallen slightly from 70.8 to 70.0.

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Published on  Mon, Jul 6 2009, 09:57 GMT