October 14, 2010

Trade Deficit Wider; Weekly Jobless Claims Up; PPI Higher

Trade gap with China up to $28 billion as jobless claims rose 13,000

The markets spent the day digesting a raft of economic news that showed a widening trade deficit, a stubbornly high rate of unemployment and a higher price of goods for U.S. businesses at the producer level.

On Thursday, the Commerce Department reported that the August trade deficit widened further compared to July, with the deficit with China accounting for $28 billion, up from $25.9 billion a month earlier.

“The overall improvement in the U.S. trade deficit through the ‘Great Recession’ and especially in 2009 is rapidly becoming a thing of the past as a steady widening since May 2009 has now pushed the nominal trade deficit out wider than it was in November 2008,” wrote Pittsburgh-based PNC Financial Services’ economics group in an analyst note.

Stocks were lower in afternoon trading, with the Dow Jones industrial average down 49.27 points, 0.44% lower, at 11,046.81. The S&P 500 was down 8.75 points, 0.74% lower, at 1,169.35. The Nasdaq index was down 14.13 points, 0.58% lower, at 2,427.10.

Imbalance in Trade With China Worsens

Notably, the July to August increase in imports of goods reflected an overall $1.4 billion increase in consumer goods, much of it from China. U.S. exports of consumer goods were virtually unchanged. In addition, the United States increased its consumption of crude oil to a rate of $20.21 billion in August from $19.95 billion in July.

“U.S. international trade data in 2010 shows a widening headline trade gap driven by a growing imbalance in trade with China,” the PNC economists wrote. “On a non-seasonally adjusted basis the trade in goods with China ran a further

$2.1 billion into deficit in August, showing a bigger drag to net trade coming from China than from any other country or major trading block, including OPEC and the European Union.”

Total August exports of $153.9 billion and imports of $200.2 billion resulted in a goods and services deficit of $46.3 billion, 8.8% higher than July’s revised figure of $42.6 billion. August exports were $0.3 billion greater than July exports of $153.5 billion, while August imports were $4.1 billion greater than July imports of $196.1 billion.

A pre-release Bloomberg survey showed that economists had expected the trade deficit to rise to only $44.3 billion.

Higher Jobless Claims Disappoint Expectations

As for the unemployment picture, initial jobless claims for the week ending Oct. 9 came in at a seasonally adjusted rate of 462,000, an increase of 13,000 from the previous week's revised figure of 449,000, the U.S. Labor Department reported Thursday. The higher jobless number followed a series of lower claims numbers over five of the last six weeks.

Economists’ consensus was for only 443,000 newly filed claims.

The less volatile four-week moving average also showed a loss of jobs, posting a 2,250 increase to 459,000 versus the previous week's revised average of 456,750.

In other economic news on Thursday, the producer price index (PPI) for finished goods increased 0.4% in September, seasonally adjusted, the U.S. Department of Labor reported Thursday. PPI measures the cost for goods before it gets passed to consumers.

This advance followed a 0.4% rise in August and a 0.2% increase in July. On an unadjusted basis, prices for finished goods advanced 4.0% for the 12 months ended September 2010, their 11th straight year-over-year rise.

The PPI consensus estimate was for a 0.1% rise in prices.

Marlene Satter contributed to this story.

Read about PPI in August at AdvisorOne.com.

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