Today’s U.S. and Canadian Data

October 14, 2010

The U.S. August trade deficit of $46.2 billion split the difference between the June and July shortfalls of $49.8 billion and $42.6 billion and so seems pretty representative of the present underlying trend.  The year-to-date deficit was $100 billion greater than in January-August 2009, a deterioration of $12.5 billion per month.  China and OPEC each account for roughly 28% of the increased merchandise trade gap this year compared to last year, while Europe and the Western Hemisphere caused about a fifth of the deficit’s growth apiece.  The deficit with Japan was $11.3 billion wider in the first eight months of 2010 than a year earlier.  Net foreign demand seems likely to exert a drag on third-quarter GDP growth but not nearly as severe as the 3.5 percentage point negative contribution to overall growth of 1.7% annualized in the second quarter.  The rapid post-recession increase of the U.S. trade deficit suggests that the dollar is not yet weak enough to produce a sustainable configuration of global imbalances.

The Canadian trade deficit was nearly halved to CAD 1.345 billion in August from CAD 2.545 billion in July.  Exports rose 3.1% on month and by 3.9% if energy is excluded.  The bulk of this increase was volume-related.  Imports slid 0.5% despite a 2.5% increase in energy imports.  Exports of industrial goods and materials rose 5.8%, while imports of such goods fell by 3.3% in the latest month.  Despite the smaller trade surplus in August, July-August figures point to a current account deficit in Canada equal to more than 3.5% of GDP in the third quarter.

New U.S. jobless insurance claims increased to 462K last week from an encouraging 449K the week before.  Alas, the U.S. labor market is stuck in the mud. New jobless claims in the past four weeks averaged 459K per week, which compares with averages of 467K per week in the twenty weeks to September 11 and 462K per week in the previous twenty-four weeks to April 24, 2010.  Do not be fooled into complacency by the lower figure for continuing jobless claims of 4.399 million in the week to October 2nd versus 4.511 million in the previous week.  For many people, extended benefits simply ran out, and purse strings will be tightened by the next congress.  Analysts are reconciled to the fact that it may take 4-6 years for the labor market to normalize.  I have a more bearish take on what normal constitutes.  In truth, the normal level of full employment is an ever-rising target, estimated by extrapolating the 1.8% per annum expansion of jobs seen in both the 1980s and 1990s on a vector of same slope from the end of the twentieth century.  Using that methodology, the trend line of jobs reaches 175.5 million by end-2015, 192 million by end-2020, and 210 million by end-2025.  To hit those levels requires average monthly employment growth of more than 400K, which is doubtful.  

U.S. producer prices rose 0.4% on month in September, 4.0% on year and 4.1% annualized over the third quarter.  Core producer prices went up 0.1% on month, 1.6% on year, and 2.1% annualized during the third quarter.  These results indicate a lack of deflation upstream in the production food chain, and the Fed wants to keep it that way. 

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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