Trade Deficit Narrows on Weak Dollar, Jobless Claims Fall

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Includes: UDN, UUP
by: Bondsquawk, CFA

By Maulik Mody

In an indication that the job market might be recovering, the Labor Department reported that the number of Americans filing for unemployment benefits for the first time fell to the lowest level in four months. Initial jobless claims fell by 24,000 to 435,000 in the week ended Nov 6, lower than economists’ estimates. The total number of jobless claims filed also decreased to the lowest level in 2 years, instilling confidence in the labor market.

Although the improvement comes in as a positive, unemployment rate is still forecasted over 9% for the coming year. Fewer firings and added hiring are required by companies for the labor market recovery to look promising. Added jobs and increased payrolls will help in boosting consumer spending, thereby sustaining the recovery.

Trade deficit in the U.S. narrowed beyond expectations in September as the weakened dollar made U.S. goods more attractive to foreign buyers. The gap with China and other major trading partners narrowed as imports fell, causing the trade deficit to fell 5.3% to $44 billion. Exports pushed to the highest level in 2 years as service exports reached a record high. Overall sales expanded 0.3% to $154.1 billion, while imports fell 1% to $198.0 billion.

The improvement in deficits was caused reduced oil and auto imports. On the export side, foreign demand for US aircrafts, generators and foods increased. The trade deficit with china fell to $27.83 billion, as both imports and exports declined. Foreign trade has been one of the biggest drags on the US economy, as imports have far exceeded exports in recent times. Reports showed that inflation adjusted exports, which is used to measure the impact of trade on GDP, decreased $1.64 billion in September to $49.93 billion.

China is one among many other nations who have voiced concerns about the US pumping more money in the economy to weaken the dollar. This currency tension ahead of this weekend’s G-20 Summit has caused investors to bid up dollar prices, pushing it to a record high.

Stocks were lower close to noon. The S&P fell 0.2% and was last seen at 1210. NASDAQ was 0.1% lower at 2560. Treasuries were lower in morning trade. Yield on the benchmark 10-Yr was 3 bp higher at 2.73%. The 5-Yr fell the most and traded last at 1.31%, 6 bp higher since yesterday.