U.S. Trade Deficit Increases WithEconomic Recovery

Economic recovery hit the U.S. trade accounts with a double-whammy during November. It generated a 2.6% m/m rise in imports and it increased the international trade deficit to $36.4B which was the highest since January. The rise followed October's deficit of $33.2B which  was revised up slightly from the initial estimate. Export growth lagged with a 0.9% increase that followed two months of stronger increase. The latest figure was quite a bit higher than Consensus expectations for a deficit of $34.5B.

Imports rose 2.6% in part due to a rise in crude oil prices to $72.54 per barrel which was the highest level since October of 2008. Overall, however, the gain in petroleum imports was held back by a 4.6% m/m decline (-8.2% y/y) in the quantity of energy-related products. U.S. economic recovery continued to be apparent in a 1.5% increase (-6.3% y/y) in real nonoil imports which was the fifth increase in six months. Real non-auto capital goods imports jumped 3.5% (-13.0% y/y) after a 2.8% September rise. Real nonauto consumer goods imports surged 3.7% and by 12.5% since June. These are turnarounds from earlier sharp declines. Real automotive vehicles & parts imports, however, slipped 0.4% (-0.1% y/y) but they were up by one-half since the spring. Real capital goods imports also have been strong and rose 3.6% for the fourth increase in five months. They have risen 14.5% since June. Finally, services imports rose a modest 0.3% (-4.0% y/y) for the fifth increase in six months. U.S. travels abroad were discouraged by the lower dollar. Travel imports slipped 0.9% (-7.1% y/y and passenger fares rose 1.5% (-25.6% y/y).

Reflecting the competitive value of the dollar, nominal exports rose 0.9% m/m and by 13.6% from the April low. Adjusted for price inflation, however, the gain is more impressive. Though real merchandise exports slipped 0.6% during November (-4.4% y/y), they have risen 13.9% since April. Offsetting a 5.4% decline (-2.3% y/y) decline in real non-auto consumer goods exports was a 9.0% rise in auto exports (-6.1% y/y) and a 0.4% uptick (-7.6% y/y) uptick in real capital goods exports. Exports of services ticked up 0.2% (-0.8% y/y) following earlier strong monthly gains.

By country, the trade deficit with mainland China lessened to $20.2B, its least since June, as exports rose 41.4% y/y and imports fell 2.5%. With Japan, the trade deficit deteriorated to $5.4B from 5.1B one year earlier as exports fell 16.3% while imports fell just 4.4%. With the European Union, the trade deficit deteriorated to $6.4B as exports declined 9.4% y/y and imports fell a lesser 5.3%.

The international trade data can be found in Haver's USECON database. Detailed figures are available in the USINT database.

The Determinants of International Flows of U.S. Currency from the Federal Reserve Bank of New York can be found here. 

Energy prices are responding to evidence of economic recovery. Last week the pump price for regular gasoline rose to $2.75 per gallon, the highest level since October 2008 and up 71% from the December 2008 low of $1.61. Yesterday, strength in gasoline prices eased somewhat. The spot market price for a gallon of regular gasoline held at $2.12 per gallon, the same as last week's level. The figures are reported by the U.S. Department of Energy and can be found in Haver's WEEKLY & DAILY databases.

Earlier gains in the price for a barrel of light sweet crude (WTI) oil also stabilized. Yesterday, the spot price of $82.52 was roughly unchanged from the prior week. Nevertheless, prices have risen from $71.53 averaged in early-December. Moreover, prices were up sharply from the December 2008 low of $32.37.

Demand for gasoline last week posted a 0.9% decline versus one year ago. That decline compared to a 3.9% increase at the beginning of October. Breaking away from earlier y/y strength, the demand for residual fuel oil fell a sharp 50.4% y/y while distillate demand fell 10.9% y/y, a decline more moderate than the 21.6% y/y shortfall at the beginning of last July. Inventories of crude oil and petroleum products fell in early-January by 6.2% from the July high and were up a diminished 3.1% from one year ago.

Reflecting the cold temperatures throughout the U.S. natural gas prices also strengthened significantly. Last week prices averaged $6.50 per mmbtu (11.1% y/y), up from $3.35 in November and triple the September low. Nevertheless, prices remained down by half from the high reached in early-July of 2008 of $13.19/mmbtu.

The energy price data can be found in Haver's WEEKLY database while the daily figures are in DAILY. The gasoline demand figures are in OILWKLY.

The Case for "Inflation First" Monetary Policy from the Federal Reserve Bank of St. Louis is available here 

The holiday spirit faded last week. That was reflected in a 3.0% w/w decline in chain store sales which left purchases at the lowest level since March of last year. Nevertheless, sales rose 1.7% y/y. Most likely the latest weakness as much reflects post-holiday price discounts as a decline in sales' volume.

The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.During the last ten years there has been a 69% correlation between the year-to-year growth in chain store sales and the growth in general merchandise retail sales. The weekly figures are available in Haver's SURVEYW database.

Also suffering from post-Holiday blues was the leading indicator of chain store sales. It slipped marginally early in January but its level was near the highest since January of last year. This composite leading economic indicator is compiled from four series: (1) the MBA's volume index of mortgage applications for home purchase (2) the ABC News/Money magazine's survey of consumer buying conditions (3) new filings for jobless benefits and (4) the 30-year government bond yield

Industrial production in India increased 3.0% from 298.8 (FY 1993=100) in October to 307.8 in November and was 11.7% greater than November 2008.  This follows October's year over year increase of 10.4%.  The production of electricity was down 1.7% for the month but was 3.3% above the year ago level.  Mining production increased less than a third of a percent in November but was almost 10 above the year ago level.  Production in the manufacturing sector was strong, increasing 4.2% in the month and 12.7% over a year ago.  The trends in total production and its major components over the past six years are shown in the first chart.  The rising trend in production halted in 2008 and early 2009, but never actually reversed into a decline.

Industrial production for India is also reported for Market Groups, some of which are shown in the second chart.  (Recent levels and percentage changes for those market groups not shown in the chart are shown in the table below.) Production of consumer durables was a standout in November with production up 14.0%.  A steadily increasing rate of production has brought the production of consumer durable goods 37.4% above that of November 2008   Although capital goods production increased only 0.39% in the month of November it was 11.6% greater than in November 2008.  There was a similar pattern in the production of Intermediate Goods, which increased 1.5% in November but was 19.4% above the year ago level.

Rising industrial production in the first two months of the fourth quarter bodes well for growth in the total economy in the fourth quarter.  Industrial production has accounted for between 18% and 20% of GDP over the past six years as shown in the third chart.