Angus Broddick's  Instablog

Trade Balance

The trade gap widened 5.9% in December, coming in at -$40.583 billion after the $38.316 billion gap for November.  

The gap in trade is mostly due to our energy import needs; remove the crude oil component and the gap actually narrowed by a large $3 billion to -$15.285 billion, and has narrowed a massive $9.5 billion since August. 

In fact, as you can see in the chart below, the big consumer spending that drove the ex-petro trade gap deeply negative (first taking place as the late 1990s stock-market boom inspired the wealth effect, then followed by the mid 2000s as exploding home prices encouraged consumers to pocket home-price appreciation via cash-out refis) has reversed.  Those that constantly talk about the need to reduce our trade deficits are ironically the same people who advocate restrictions on domestic energy production.

Exports rose a strong 1.8% in December driven by capital goods and autos, consumer goods slipped 2.0% after November’s 7.0% jump. Import activity was strong though, rising 2.6% -- almost completely driven by petroleum products (exclude petro and imports were up only 0.3%).  Import activity by this measure (ex-petro) has net declined over the past four months.

So the gap in trade is mostly due to our energy importing needs.  This doesn’t only weigh on GDP growth but is simply not an optimal economic situation for the U.S.  We want to create more high-paying manufacturing jobs and the most efficient way to do that is to expand our production allowances by removing restrictions.  This will reduce our need on foreign sources and help re-invigorate our labor market at the same time.  It only makes sense, which is probably why we won’t do it.

U of M Confidence

The preliminary reading from the University of Michigan/Reuters’ gauge on consumer confidence for February improved to a reading of 75.1 from 74.2 in January.  This is the third improvement over the past four months and nearly gets us back to the post-crisis high hit in June – although it remains substantially below the historic average of 86.1.

The overall index was completely driven by the current conditions survey, which improved five points to 86.8.

However, the expectations measure (which involves questions about consumer expectations of their financial position a year out, the county’s financial position a year out, and economic growth over the next five years) declined 1.7 points to 67.6.