U.S. Trade Deficit Catapults Higher Despite Tariff Policy

March 6, 2019

The U.S. goods and services trade deficit soared to a 122-month high in December of $59.8 billion. That was 18.8% greater than November’s deficit and embodied an $81.5 billion deficit from traded goods. The 2018 goods and services trade deficit equaled $621.0 billion, compared to $552.3 billion in 2017 and $502.0 billion in the last year of the Obama presidency. Merchandise trade generated an $891.2 billion net deficit last year versus $807.5 billion in 2017 and $751.1 billion in 2016. The deterioration highlights the futility of higher tariffs when trying to reduce the trade imbalance and the counterproductive effect of a massive tax cut in an economy already near full employment when the top priority is eliminating the trade deficit.

The tax bill has also ballooned America’s fiscal deficit. In the normally surplus month of January, such amounted to only $9 billion, about a third of what analysts had anticipated.

The National Bank of Poland’s reference interest rate was left unchanged at a record low of 1.5%, its level since a pair of 50-basis point cuts in January and March of 2015. CPI inflation edged below 1.0% in January to a 25-month low.

Likewise, monetary officials at the Central Bank of the Republic of Turkey kept their one-week repo rate at a punitive 24%, its level since a 625-basis point increase last September. This followed three earlier increases in 2018 totaling 500 basis points and 275 basis points of tightening implemented during 2017. The Turkish lira’s plunge lifted above 25% before cresting last year. Although inflation edged below 20% by February a released statement reaffirmed that officials need to “maintain the tight monetary policy stance until inflation outlook displays a significant improvement” because of the persistence of upside price risks.

Euroland’s construction purchasing managers index recovered to a two-month high of 52.6 in February from a reading of 50.6 in January. The German and French construction PMI scores climbed to respective 13-month and 2-month highs of 54.7 and 51.3, Italy’s index fell 1.1 points further to an 11-month low of 50.7.

Australian real GDP rose only 0.2% on quarter in 4Q18, the slowest advance of 2018, and that depressed on-year growth by half a percentage point to 2.3% last quarter.

Sweden’s 2018 current account surplus in 2018 of SEK 93.8 billion was down from SEK 127.6 billion the year before despite a 2-year high of SEK 39.6 billion last quarter. Norway ran a NOK 46.8 billion current account surplus last quarter, 38.5% wider than in the final quarter of 2017.

Canadian labor productivity contracted 0.4% last quarter and was just 0.2% higher than a year earlier. Productivity in full-2018 was unchanged from 2017. Such had advanced 1.9% in 2017 following a meager 0.3% rebound in 2016 after a 0.7% decline in 2015. Canadian unit labor costs rose 2.5% in 2018, three times more than the increase in 2017. Unit labor costs in 2016 fell 1.6%.

Canada posted a record monthly trade deficit of C$ 4.59 billion last December due to a 3.8% plunge in exports that was concentrated in the energy sector. Even so, the deficit of C$ 21.7 in 2018 was slightly smaller than the C$ 24.6 billion shortfall in 2016.

The dollar is unchanged against the yuan, euro and Swiss franc but up by 0.8% versus the Aussie dollar, 0.4% relative to the kiwi, 0.3% vis-a-vis the loonie, 0.2% against sterling and 0.1% relative to the peso. The dollar is 0.1% softer against the yen.

Stock markets rose 0.8% in Australia and China but fell 0.6% in Japan overnight. The British Ftse is 0.4% firmer, while the German Dax has edged down 0.2%.

WTI oil fell 1.0% overnight, and gold continues to hover below the $1300 threshold.

Ten-year sovereign debt yields declined overnight in Germany, Japan, the U.K. and the United States futures.

The monthly estimate by ADP of U.S. private jobs growth was 183K for February, which is marginally less than analysts were anticipating.

The Bank of Canada’s monetary policy decision will be made at 10:00 EST.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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