U.S. and Canadian Latest Trends in Trade

April 13, 2010

The U.S. recorded a $39.7 billion goods and services trade deficit in February, which exceeded expectations yet again.  The deficit in December-February averaged $38.9 billion per month, 43.8% wider than in the second quarter of 2009.  If the dollar moved in lockstep with relative economic growth, it would be a chronically appreciating currency because U.S. growth has been consistently faster than growth in Japan or Europe since the euro’s creation at the start of 1999.  One factor behind the disparity between relative growth rankings and currency movements is that comparative high economic growth powered by domestic demand in the United States has been associated with substantial trade and current account deficits that wax and wane with the speed of global economic activity.  As the world recovery deepens and broadens, a worsening of the U.S. current account is probable, and just as analysts were surprised by sharpness of the deficit’s shrinkage in 2009, the shortfall’s rise this year seems likely to surpass expectations.  The goods deficit in January-February amounted to $100.7 billion, up from $84.8 billion a year earlier but down from $147.3 billion in January-February 2008.  Exports this past February rose just 0.2%, while imports advanced 1.7% above January’s level.

A bigger energy import bill accounted for much of the incremental growth in the U.S. trade deficit in comparisons of January-February from a year earlier.  OPEC and Mexico collectively were responsible for 97.8% of the customs deficit’s rise.  Elsewhere, the deficit with Euroland widened by $1.5 billion, but that with the Pacific Rim narrowed $5.4 billion despite a $1.1 billion increase of the imbalance with Japan.  The bilateral deficit versus China was essentially unchanged and comprised 41.5% of America’s entire deficit in the first two months of this year.

Canada’s trade surplus in February of CAD 1.395 billion was the biggest in 15 months and twice as large as predicted.  There have now been five consecutive surpluses.  Total exports rose 2.8% on month in February, three times more quickly than imports, and non-energy shipments climbed 3.4%.  Total export volumes advanced at a 16% annualized rate over the three months between November and February.  The January-February surplus of CAD 2.15 billion contrasts with a deficit of CAD 0.42 billion a year earlier and a deficit of CAD 4.24 billion in the third quarter of 2009.  CAD/USD has been fluctuating around par lately, and an upward break-out of Canada’s currency is supported by fundamentals such as the strengthening current account, solid economic recovery, and a probable tightening of monetary policy in Canada before the onset of rising U.S. rates.

Among other Canadian and U.S. statistics released today,

  • New house prices in Canada edged only 0.1% higher in February after advancing 0.4% in each of the three prior months.  On-year house price inflation is no longer negative, but it is only barely positive at 0.9% versus minus 2.1% in November.
  • U.S. import price inflation was level in the first quarter at 11.5% in January, 11.2% in February, and 11.4% in March, but the latest month represents a 26.3 percentage point acceleration from minus 14.9% in the year to March 2009.  Import and export prices each increased 0.7% between February and March.  Export prices were 4.6% higher than a year earlier, swinging from an on-year drop of 6.7% posted in March 2009.  Core non-fuel import prices accelerated to 2.7% from 2.0% in February and minus 2.8% in March 2009.
  • On-year U.S. retail sales growth in the week of April 10 of 4.0% on the ICSC measure and 3.3% on the Johnson Redbook data showed continuing buoyancy despite weak on-month results.
  • U.S. small business confidence calculated by the National Federation of Independent Business slipped to an unexpected 8-month low in March.  Although the IBD/TIPP diffusion index of optimism improved 3 points, it remained below 50 and, at 48.4, was four points beneath its level seven months earlier.

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

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