November 10, 2010

Import-Export Prices Rose in October; Jobless Claims Down in Week

Seemingly positive data don't reflect 'new reality' of post-election economy

A week after the midterm elections and the Federal Reserve’s decision to pump more money into the economy, reports showed that import and export prices rose in October, jobless claims were down for the week, the trade deficit shrank more than forecast in September and the U.S. government posted a smaller budget deficit in October.

But according to Joel Naroff, president and chief economist of Naroff Economic Advisors in Holland, Pa., the seemingly positive data do not point to a new reality since last week.

“The reality is that the recovery is going to require people to spend again. This has got to be a demand-driven recovery," Naroff said. “We’re dealing with a lack of demand, and the increase in prices in food and energy get transmitted directly to the consumer. All it does is give them less money to spend on other things. I’m not so worried that we’re headed toward high inflation as much as it’s going to act essentially as a tax on consumer demand.”

Stocks were higher at market close, with the Dow Jones industrial average up 10.29 points, 0.09% higher, at 11,357.04. The S&P 500 was up 5.31 points, 0.44% higher, at 1,218.71. The Nasdaq index closed up 15.80 points, 0.62% higher, at 2,578.78.

Jobless claims continued their decline this week to a four-month low as the Labor Department reported Wednesday that seasonally adjusted initial claims dropped 24,000 to 435,000, falling for the third time in four weeks. The four-week moving average was 446,500, down 10,000 from the previous week's revised average of 456,500.

Export prices stood at a two-year high, rising for the third consecutive month in October, up 0.8%, while import prices advanced 0.9% in October after edging down 0.1% in September, the Labor Department reported Wednesday. Exports were more expensive largely due to a 2.5% rise in agricultural prices such as corn, soybeans and cotton. The import price increase came largely from a 3.0% jump in fuel prices, while the main contributor to the price jump in nonfuel imports was a 1.9% rise in prices for non-fuel industrial supplies and materials along with a 1.1% price jump in food and beverages.

Also on Wednesday, the U.S. Commerce Department said that the nation’s international trade deficit in goods and services fell by 5.3% to $44.0 billion in September as exports increased and imports decreased. Total September exports of $154.1 billion and imports of $198.1 billion resulted in the smaller goods and services deficit. September exports were $0.5 billion more than August exports of $153.6 billion while September imports were down 1%, or $2.0 billion less than August imports of $200.1 billion.

Finally, the U.S. budget deficit came to $140.4 billion last month versus $176.4 billion in Oct. 2009, thanks to increased tax receipts, according to the Treasury Department’s budget statement. For the fiscal year ended Sept. 30, however, the government reported its second-largest annual budget deficit on record. The Congressional Budget Office estimates the deficit this fiscal year will exceed $1 trillion for a third time.

Overall, there is “no new reality since last week,” Naroff said. “Let’s face it, fiscal policy will have no impact in 2011. It takes too long for changes in fiscal actions to be transmitted [to the markets]. Even if the Republicans didn’t take control of the House, it’s doubtful that the Democrats would have had the stomach for any more stimulus programs after the feedback from the populace. What will be different over the first six or nine months of next year in Congress other than a lot of ranting, raving and posturing and people saying they’re going to create jobs and cut the budget?”

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