The Weekend Economic Wrap Up

By May 13, 2007Economy

Business is UpThis past week, two economic reports came out, one on international trade and another on retail spending. Both were influenced by the recent rise in energy prices.

On Wednesday, the Commerce Department releaed its report on March international trade. The report showed that higher oil prices led to a $6 billion increase in the trade deficit to $63.9 billion in March. The rise in imports of petroleum, exacerbated by higher prices, was responsible for more than half of the rise in the trade deficit in March. Outside of petroleum, the report contained some encouraging nuggets, notably for manufacturers.

Through the first three months of this year, manufactured exports increased by 10 percent versus the first quarter of 2006. This is more than half again as fast as the 5.9 percent rise in imports. An encouraging result of this trend is that the $119 billion manufactured goods trade deficit in the first quarter was $1.6 billion smaller than during the same period last year.

The realigning dollar, which fell by 17 percent since early 2002, along with solid economic growth in most areas of the world, are together creating favorable trade winds for manufacturers. This is the antithesis of the perfect storm scenario of an overvalued dollar and a global economic downturn that hit manufacturers back in 2001.

With the U.S. economy currently stuck in low gear due, in part, to the housing downturn, import growth will be restrained in the months ahead. At the same time, favorable global trends should accelerate export growth. As a result, the trade balance should improve over the course of the year.

Then on Friday, the Commerce Department reported on April Retail Sales. The report showed that retail sales fell by 0.2 percent in April. This was the second drop of the year and the largest monthly decline since last September. Excluding spending at gas stations retail sales fell by a stronger 0.4 percent, the single largest drop since last June.

Clearly the rise in energy prices is starting to squeeze consumer spending. This is an early indication that the 3.8 percent rise in consumer spending in the first quarter will not be repeated in the second quarter. With the housing downturn continuing into the second quarter, and with consumer spending under new pressure from higher energy prices, look for continued modest growth in the economy in the near term.

Next Wedneday, the government will report on industrial production as well as housing starts/permits, which should give us some information with respect to the duration of the housing downturn. Stay tuned!!