US Trade Deficit Signals Weakening Economy

US Trade Deficit Signals Weakening Economy

$DIA, $SPY, $QQQ, $VXX

The US trade deficit widened more than expected in February. A rebound in exports was offset by an increase in imports, the latest indication that economic growth weakened further in Q-1.

Other data Tuesday show that activity in the services sector picked up in March as new orders rose, and continuing strength in the labor market.

The US Commerce Department said the trade deficit increased 2.6% to $47.1-B in February, worse than economists’ forecasts for a reading of $46.2-B. When adjusted for inflation, the shortfall rose to $63.3-B, the largest since March last year, from $61.8-B in January.

That prompted economists to cut their Q-1 GDP estimates by as much as half a percentage point to as low as a 0.4% annualized rate, very weak.

The US economy grew at a 1.4% rate in Q-4 of Y 2015. Though the trade report joined data on consumer and business spending in casting a dark shadow over the economy, the clouds that are not likely to lift coming months.

The Institute for Supply Management said its services industry activity index increased 1.1 pts to 54.5 in March. A reading above 50 indicates growth in the services sector, which accounts for more than 67% of the US economy.

A 3rd report from the US Labor Department showed hiring by US employers increased 297,000 to 5.4-M in February, the highest level since November 2006. Notably, 2.95-M people voluntarily quit their jobs in February, lifting the quit rate to 2.1%. The jobs market numbers are also weak.

The US Fed looks at the quit rate as a measure of confidence in the jobs market and it is hoped that increased labor market churn will drive up wages, wages are currently stagnant..

Exports have been undercut by a buoyant Buck, which has made US-manufactured goods expensive relative to those of the country’s main trading partners. Slowing growth in Europe and China has also eroded demand for US goods.

The USD is down 1.3% on a trade-weighted basis YTD after gaining about 20% Vs its main trading partners between June 2014 and December 2015.

In February, exports of food, automobiles and parts, as well as consumer goods increased. But exports of industrial supplies and materials were the lowest in 6 years. Capital goods exports hit their lowest level since November 2011. Petroleum exports were the lowest since September 2010.

Imports of goods and services rose 1.3% in February, suggesting strong domestic demand.

Lower Crude Oil prices and increased domestic energy production are keeping the import bill in check.

Food imports hit a record high in February.

But imports of industrial supplies and materials were the lowest in nearly 7 years. Petroleum imports touched their lowest level since September 2002.

Crude Oil prices averaged 27.48 bbl in February, the cheapest since December 2003.

The US-China trade deficit fell 2.8% to $28.1-B in February.

Tuesday the US major stock market indexes finished at: DJIA -133.68 at 17603.32, NAS Comp -47.86 at 4843.93, S&P 500 -20.96 at 2045.17

Volume: Trade was heavy with over 1-B/shares exchanged on the NYSE

• Russell 2000 -3.4% YTD
• NAS Comp -3.3% YTD
• S&P 500 +0.1% YTD
• DJIA +1.0% YTD

Stay tuned…

Paul Ebeling

HeffX-LTN

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