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US economic indicators

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Trade balance (Aug): Rising slightly due to higher prices

Mon, Oct 5 2009, 09:30 GMT
by BHF-Bank Economics Department

BHF-Bank

• ISM non-manufacturing index (Sep): reaching the growth threshold

• Trade balance (Aug): rising slightly due to higher prices

The ISM non-manufacturing index rose by 2 points in August, but still indicated contraction, in contrast to the manufacturing index. However, as the business activity subindex had already broken through the expansion threshold and new orders had reached 49.9, the ISM non-manufacturing index could have reached 50.0 in September, for the first time since September 2008. But given the sharp fall in services employment as shown in the September labour market report, the downside risk to our forecast prevails, as the employment component will have remained low.

Consumer credit has been on a steep downward trend since last autumn, and has fallen by about $87bn in the first seven months of 2009. We predict that consumer credit, which plunged by a record $21.6bn in July, will have dropped by about $12bn in August, which would be close to the average monthly decline this year so far.

Initial jobless claims unexpectedly went up by 17k to 551k in the week ending 26 September, but the 4- week moving average declined slightly further to 548k, indicating a modest downward trend. We expect initial jobless claims to have remained at about that level in the week ending 3 October.

Wholesale inventories fell by 1.4% mom in July. Although we expect the depletion of inventories to have slowed, it could still have reached –1.0% mom in August, because of the huge demand for vehicles connected with the Car Allowance Rebate System.

In September, the federal budget normally shows a surplus because tax payments boost revenues. But due to the recession, the positive impact might have been less pronounced this year. Thus it is even possible that the budget statement will show a slight deficit of $10bn in September.
It should be noted that the reporting month marks the end of fiscal year 2008/2009. We expect the total deficit to have amounted to a record $1575bn. If Fannie Mae and Freddie Mac were not included as government entities, the deficit would be roughly $1400bn.

The nominal trade deficit unexpectedly widened by $4.5bn to $32.0bn in July. Both imports and exports went up significantly, but import growth (+4.7% mom) outpaced export growth (+2.2% mom) by far. This was partly connected with high demand for vehicles due to CARS. In August, the ISM export orders component jumped five points to 55.5, whereas the import orders component fell slightly below 50 again, despite CARS. However, import prices went up by 2.0% mom in August, and there could thus be a noticeable rise in petroleum imports. We therefore predict that the nominal trade deficit will have risen to about $32.5bn. But the real trade deficit, which deteriorated by about $3bn in July, is likely to have narrowed somewhat.

• Download Full US Economic Indicators

Published on  Mon, Oct 5 2009, 09:34 GMT