"Bigger Than Brexit?"
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World View & Market Commentary.
Forest first; Trees second.
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In November, the U.S. trade deficit widened sharply in November due largely to a jump in oil imports but also due to a dip in exports. The trade gap grew to $47.8 billion from $43.3 billion in October (originally $43.5 billion). The latest shortfall was much more negative than the consensus forecast for $45.0 billion. Exports declined 0.9 percent after dipping 0.7 percent in October. Imports rebounded 1.3 percent in November, following a 1.0 percent decline the prior month.
The worsening in the trade gap was led by the petroleum gap which expanded to $27.6 billion from $24.2 billion in October. The nonpetroleum goods deficit widened to $34.8 billion from $33.2 billion the month before. Several factors were behind this, including a drop in exports of nonmonetary gold and a boost in automotive imports. The services surplus was slightly improved at $15.4 billion from $15.3 billion in September.
On a not seasonally adjusted basis, the November figures show surpluses, in billions of dollars, in part with Hong Kong $3.2 ($3.0 for October), Australia $1.5 ($2.1), and Singapore $1.0 ($1.0). Deficits were recorded, in billions of dollars, in part with China $26.9 ($28.1), the European Union $9.7 ($8.0),OPEC $9.1 ($8.3), Japan $6.2 ($6.2), Mexico $5.5 ($5.3), Germany $4.7 ($4.3), and Canada $3.0 ($2.2).
Today's report is moderately complex. You cannot attribute the huge worsening to any one fact. Due to special factors, it is very likely that the November number will be partially reversed soon and significantly. Exports of nonmonetary gold have been volatile recently. The surge in oil imports cannot continue at that pace. And the jump in auto imports probably was just American auto companies taking delivery of production in Canadian facilities outside of Detroit. So, economists will be shaving their forecasts for fourth quarter GDP but underlying trends appear to be changed only very slightly with weakness in exports to Europe likely real but not that significant.
A monthly dip in petroleum prices helped pull down import prices by 0.1 percent in December. Excluding petroleum which helps smooth out monthly distortions, import prices rose a very mild 0.1 percent following 0.2 percent declines in the prior two months. Price pressures of imported finished goods rose but only slightly to still subdued monthly rates of 0.2 percent for both imported capital and imported consumer goods. Prices for imported vehicles rose only 0.1 percent.
There's also no trouble on the export where prices fell a steep 0.5 percent in the month following a 0.1 percent gain in November and a 2.0 percent fall in October. Prices of agricultural exports swung lower in December after swinging higher in November and lower in October.
The strengthening dollar, strength tied to investor demand for safety, is helping to subdue import price inflation. Today's report points to mild readings for next week's producer and consumer price reports.
The long sweep of improvement in initial jobless claims hit a bump in the January 7 week, up a very steep 24,000 to 399,000. The goods news is that claims are still under 400,000 for a ninth time in 10 weeks. But otherwise the data, which the Labor Department stresses is free from special factors, point to a step backward for the jobs market with the four-week average, up a sizable 7,750 to 381,750, ending five straight weeks of improvement (prior four-week average revised to 374,000). Details also include a 3,000 upward revision to the December 31 week to 375,000.
Continuing claims also rose, up 19,000 in data for the December 31 week to 3.629 million. Here the four-week average is unchanged at 3.605 million with the unemployment rate for insured workers also unchanged, at 2.9 percent.
Though the data are clean from special factors, the first week of the year is typically the highest week for claims. This factor brings into play seasonal adjustment questions. Still, today's report is a disappointing start to the January employment picture.
December retail sales advanced but less than expected but part of the slowing was due to upward revisions to November and October. Retail sales in December edged up 0.1 percent, following a 0.4 percent rise in November (originally up 0.2 percent) and 0.7 percent gain in October (previously up 0.6 percent). The December figure came in lower than the consensus forecast for 0.4 percent. Excluding autos, retail sales actually fell 0.2 percent in December after increasing 0.3 percent in November (originally up 0.2 percent) and increasing 0.5 percent in October (previously up 0.6 percent). The market median forecast was 0.4 percent. Gasoline sales dropped 1.6 percent after a 0.9 percent increase in November.
Sales excluding autos and gasoline in December were flat, following a modest 0.2 percent increase in November (originally up 0.2 percent). Econoday's survey panel now includes a consensus for this series which was 0.4 percent for December. Within the core (excluding autos and gasoline), gains were led by building materials, clothing, and food services & drinking places. Weakness was led by a drop in electronics & appliance stores.
Retail sales on a year-ago basis in December posted at up 6.5 percent, compared to 7.0 percent in November. Excluding motor vehicles, sales were up 6.0 percent on a year-on-year basis, compared to 6.8 percent the prior month.
Today's report is disappointing but hardly a disaster. Consumers are still spending and front loaded a bit in November. But some subsectors apparently did a bit of price discounting (likely electronics among others) and we may see that in quarterly earnings.
On the news, equity futures dipped somewhat as initial jobless claims also were a little higher than expected.
After three weeks of very steep declines, the purchase index jumped 8.1 percent in the January 6 week. Despite the jump, the four-week average is down 2 percent and signals moderation for housing sales which had been picking up through November and October. The refinancing index rose 3.3 percent with the four-week average down 0.5 percent. Rates mostly edged higher in the week with the average 30-year conforming loan (under $417,500) up four tenths to 4.11 percent. Watch for comments on the housing sector this afternoon in the Beige Book.
From the perspective of NFIB owners, 2011 was a flat year at best. The Index of Small Business Optimism stood at 94.1 in January and ended the year at 93.9, after dipping as low as 88.1 in August. The best that can be said is that the year ended on an upbeat, with 4 months of improvements. Eight of the ten Index components did end the year higher, the spoilers were Expected Business Conditions in 6 Months, which ended the year 18 points below January readings, and Expected Real Sales Volumes which ended 4 points lower. So, an index that excluded these expectations variables would have ended the year a bit higher.