Today’s North American Data

August 11, 2011

More evidence of a softening Western Hemisphere economy has surfaced.  Trade flows contracted in June in both the United States and Canada.  U.S. consumer confidence sank to a 3-month low last week, but the latest data on unemployment insurance claims were better than anticipated, providing a rare bright spot.  Unlike U.S. housing prices, their Canadian counterparts are still posting on-year appreciation.  Mexico reported weaker industrial activity.

The U.S. goods and services trade deficit widened to $53.1 billion in June from $50.8 billion in May and $46.9 billion a year earlier.  The merchandise trade deficit of $67.6 billion was the largest shortfall since October 2008.  Total and merchandise exports contracted by 2.3% and 3.2% on the month, faster than the drops in imports of 0.8% and 1.0%.  The trade data suggest that U.S. 2Q GDP growth may get revised to less than 1.0% from 1.3% reported initially and a revised 1Q growth rate of just 0.4%.  The first-half census-basis merchandise trade deficit of $346.4 billion was 17.9% greater than a year earlier.  OPEC accounted for 30.6% of that deterioration, followed by Europe and China, which were respectively responsible for 27.4% and 26.6% of the deficit’s on-year increase. 

Often, the U.S. and Canadian trade positions move inversely because those neighboring nations are such big trading partners of one another.  That has not been happening lately, however.  Canada’s trade deficit of CAD 1.561 billion in June followed deficits of CAD 1.037 billion in May and CAD 0.852 billion in April.  Mirroring the U.S. pattern, exports and imports contracted in June, with exports (off 1.7%) falling considerably faster than imports, which dipped just 0.2%.  Canada’s trade position swung from a CAD 1.846 billion surplus in the first quarter to a CAD 3.450 billion deficit in 2Q, suggesting that Canada may have accrued a current account deficit last quarter equal to about 3.3% of GDP, comparable to the U.S. deficit in the first quarter but up from Canada’s deficit/GDP ratio of 2.1% in 1Q11.  Both prices and volumes have contributed to the growing Canadian imbalances.  Canadian import prices rose 2.9% in the second quarter, twice as fast as export prices, and the inflation-adjusted trade deficit in June was some 14.5% wider than in May.

U.S. consumer confidence is getting whacked by the erosion of wealth stored in equities.  Last week’s reading was the second weakest of 2011 and not so far above the lowest readings posted in the autumn of 2008.  A 0.6% drop of Mexican industrial production in June was the largest monthly decline in 22 months and trimmed the 12-month rate of rise to 3.7%.

New and outstanding U.S. jobless insurance claims plumbed to 18- and 15-month lows.  The 405K four-week average of new claims was down from 423K in the previous four weeks.  The trend this year has been essentially sideways.  For example, claims averaged 402K during the four weeks to February 19.  It’s drop in recent weeks improves the chances that over 100K jobs were created in July, but it’s hard to imagine the labor market not deteriorating anew by August-September unless equity markets settle down in a hurry.  President Obama’s unfavorable press is an ominous sign.  Stocks usually sink when the U.S. president gets a lot of bad press, not in a cause-and-effect sense but because if such is happening, there’s already considerable pessimism about the direction of the country.

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

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