Comments on Today’s North American Data Releases

July 12, 2011

Following a solid CAD 2.035 billion surplus in the first month of 2011, Canada has now posted four straight deficit that collectively outweigh that initial surplus by CAD 80 million.  Canada has recorded 13 deficits in the last 15 reported months.  The May deficit of CAD 813 million was similar to April’s CAD 857 million shortfall.  Overall exports in May were only 7.8% greater than a year earlier despite a 19.7% leap in energy shipments.  Non-energy on-year export growth was 4.4%.

After a bad month in April related in part to Japanese auto supply chain disruptions, Mexican industrial production jumped much more than expected in May, advancing 1.1% and to a 12-month 4.6% rate of increase after dropping to 1.8% in April from 4.4% in the year to March.  This is another example of the greater adaptability of emerging economies in this decade to handle multi-dimensional adversity as compared to the advanced economies.

The U.S. May deficit from goods and services trade of $50.23 billion was the greatest deficit in 33 months and roughly twice as big as the trough of $25.52 billion set exactly two years earlier in May 2009.  The merchandise trade deficit of $64.3 billion on a census basis was $10 billion wider than April’s gap.  China made the largest contribution to that deterioration, accounting for a third of it.  38.8% of the total U.S. deficit in May was generated by bilateral commerce with China.  Other U.S. deficit shares amounted to 18.4% in the case of Europe, 17.5% with OPEC, 15.9% versus other Western Hemisphere nations, and 5.5% with Non-Sino Asia.  U.S. merchandise imports rose 58% between May 2009 and May 2011, eclipsing export growth by ten percentage points, and the level of imports exceeds that of exports by about 50%.  Current account imbalances between the surpluses of China, OPEC, and Germany on the one hand and the deficits of the United States and Euroland peripherals on the other have failed to adjusted toward an equilibrium that will be sustainable.

Chain store sales figures for the first week of this month from Johnson-Redbook and ICSC-Goldman Sachs were decent enough, but three other reports were somber.  Small business sentiment in the United States, according to the NFIB index,  has softened to a 9-month low of 90.8 in June.  This year’s best level, 94.5, printed in February, and the recession low of 81.0 occurred in March 2009.  Another gauge of U.S. sentiment, the IBD/TIPP index, continues to be very weak.  June’s IBD/TIPP reading of 41.4 was almost as bad as April’s three-year low of 40.8 and well below a 51.9 score in January.  Pervasive pessimism is also reflected in labor market measures.  The Labor Department’s JOLTS index out today showed no improvement in job openings or hirings and a slight worsening of job separations. 

When Fed Chairman Bernanke appears before the House Financial Services Committee to present the semi-annual Humphrey-Hawkins testimony, his challenge will be to present an accurate picture that avoids fanning the flames of risk aversion.  That will not be easy.  Markets weakened when Obama spoke last Friday and during last month’s post-FOMC press conference held by Bernanke.  The point is that there is scant confidence in the ability and will of authorities across a wide spectrum of countries to halt the chain reaction of debt bombs going off on multiple continents.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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