U.S. Trade Deficit Shrinks; GDP Outlook Bright

The U.S. trade deficit beat expectations by narrowing in June on record exports, appearing to confirm the Fed's supposition that global demand for American products will cushion the economy from the ill effects of the housing slowdown. "The economy needs something to step up and lead it forward and it looks like the export sector has become that savior," said economist Joel Naroff. The surprising deficit result could result in an upward revision of Q2 GDP above its current 3.4% estimate, possibly above 4%. The trade gap slimmed in June by 1.7% to $58.1 billion from a revised $59.2 billion in May, though the deficit with China widened. The deficit is running at an annualized rate of $705.5 billion, 7% below last year's record $758.5 billion figure. Last week, Fed policymakers cited increased employment and strong global demand to justify their forecast of "moderate" economic growth. In June, exports rose 1.5% to $134.5 billion on sales of petroleum products, semiconductors and cars. Exports of services, foods, industrial supplies and cars all set records. Imports also set a record at $192.7 billion. Foreign demand for U.S. products is being spurred by strong growth abroad -- China, for example, expanded 11.9% in Q2 from the previous year -- as well as the state of the dollar, which has weakened 7% since the beginning of 2006.

Sources: Bloomberg, MarketWatch, Business Week, Wall Street Journal
Commentary: The U.S. Economy: Business As Usual? • Trade Deficit Narrows Sharply on Record Exports • Monthly Budget Surplus Second-Highest Ever, But Trade Deficit Widens Over 10% [May 11, 2007]
Stocks/ETFs to watch: SPY, DIA, AGG, FXE.

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Comments

[Carl leason:]

A one month "blip" in the trade deficit does not constitute a TREND !
Just tell me when you can go into any store, especially WalMart and find something that is not made in China or some other really low wage country. When I start seeing products NOT made in China in the big
stores, I'll start thinking that maybe a trend is started.
Another thing that blows me away is that a lot of people seem to think that a strong dollar is good,...when in fact, ...it's really bad for our job market and export market. LC

2007 Aug 15 06:36 PM

[Ames Tiedeman:]

The U.S. Trade Deficit is a huge problem. We will either end up being owned by foreigners or we will simply fade away. Both prospects are quite un-
American. Some basic facts: The U.S. has not had a trade surplus with the world since 1974. We have not had a trade surplus with Japan since April of 1976. We stopped having trade surpluses with Eurpoe in 1983. Fifteen years ago we did not have a trade deficit with China. Now we have a 250 Billion a year deficit with the People’s Republic. A nation that does not make anything is a worthless nation. Worse, the longer we go without making the needed investments in our manufacturing infrastructure, the more knowledge we lose. We will either forget how to manufacture or we will simply not be good at it. Our creative energy fades away if we do not use it. Also, it is innate to want to make things. Kids play in sand boxes, youg men build tree forts. This is human nature. All of this is being taken away from the American people by idiots in Washington who do not know how to make trade deals. I may write a book on this topic.

2008 Aug 02 10:41 AM