Diane Swonk, Chief Economist
September 9, 2010 – 7:45 a.m. CT
A Glimmer of Hope in Trade
The U.S. trade deficit narrowed from a bloated $49.8 billion in June to $42.8 billion in July, as a stockpiling of goods from China abated over the course of the month. A subsidy on exports from China expired on July 15, which is now allowing imports from China to cool a bit.
Moreover, Treasury Secretary, Tim Geithner, declared yesterday that China would need to move more quickly on appreciating the Yuan against the dollar in the months to come. China has become a hotly-debated political issue ahead of elections in November, and a more substantive appreciation in their currency would not only help to stem the inflow of imports from that country but also douse the fires of protectionism that are beginning to flare.
Exports remain the true bright spot in the trade data, with capital equipment continuing to post strong gains, despite some signs of a slowdown in growth abroad. Ironically, China is fast becoming one of most important export markets at the same time it remains a fierce competitor. Developing economies need our equipment to develop.
Separately, unemployment claims dropped from 478,000 to 452,000 during the most recent week, which is somewhat reassuring. We really need to see claims in the 350,000 range, however, to see much employment growth or feel any better about this economy.
Other data released this week were less encouraging. Consumer credit contracted for the sixth consecutive month in July, as consumers continued to deleverage and show caution in their purchases, while the Fed's beige book results suggested that the economy continued to decelerate across much of the nation in August.
The Bottom Line: The economy stagnated this spring and summer, and should pick up modestly this fall with a lift from trade. "Modestly," however, is the operative word. We are still a long way from repairing the damage done, and our path out of this mess is still fraught with obstacles. We have seen and overcome worse, but that reality provides little solace with so many still in pain. For the moment, I am embracing the small miracles in life - my kids, my husband and even my somewhat high-strung mutt of a poodle, Ronald, who was rescued from the streets of Chicago. (He came with that name, but it seems to suit him.)
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