Trade Deficit Widens, Signals Weaker U.S. Economic Growth
by ilene - August 12th, 2010 12:13 am
Trade Deficit Widens, Signals Weaker U.S. Economic Growth
Courtesy of Rom Badilla at Bondsquawk
The trade deficit widened for the fourth consecutive month on a jump in imports of consumer goods from China, signaling weaker economic growth for the U.S. The Department of Commerce revealed that the U.S. Trade Balance for June totaled a deficit of $49.9 billion from a revised prior period gap of $42.0 billion. The widening was driven by both a 1.3 percent fall in exports and a 3.0 percent increase in imports. The June number disappointed the market as economists forecasted a negative trade balance of $42.1 billion.
Since January of 2010, the trade gap has widened 42 percent suggesting that economic activity during that period was weaker than originally thought. Imported goods from China and Mexico highlight much of the activity as the numbers reveal. Year to date, the trade balance with China totaled a deficit of $119.5 billion, a year over year increase of nearly 16 percent. Similarly, trade with Mexico reflects a negative balance of$33.1 billion for an increase of 56 percent from a year ago.
Today’s widening suggests that economic growth in 2010 may be weaker than originally estimated due to a change in assumptions of the calculation of GDP data. BNP’s chief economists, Julia Coronado stated in an email to clients that the widening deficit “has been a significant weight on GDP in 2010.” Furthermore she added that the “advance estimate of Q2 GDP had assumed a widening in the trade deficit in June; however the data showed an even greater deficit than assumed. Combined with other incoming source data that has been weaker than assumed, Q2 GDP looks to be tracking 1.5% q/q saar, down from the 2.4% advance estimate.”
In addition, the Mortgage Bankers Association released its weekly applications index. For the week ending August 6, mortgage applications increased by only 0.6 percent from a prior period increase of 1.3 percent. This anemic numbers partially coincides with stagnant mortgage rates, which influences demand for home purchases and mortgage refinancings.
According to Bankrate.com, the 30 Year Conventional National Average Rate was unchanged at 4.56 percent from the prior week. Interestingly and given that interest rates are generally correlated, the 10-Year U.S. Treasury dropped 9 basis points to 2.82 percent during the same time-period.
With yesterday’s FOMC announcement that they will reinvest maturing mortgage and agency…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.