Narrowing Trade Deficit Cushions Blow on Economy
CHICAGO, January 10, 2007 —"The gap between U.S. exports and imports widened to $801.7 billion in the third quarter of 2006 and ate up a record-breaking 6% of GDP. There are signs, however, that the rate of deterioration in the U.S. trade deficit slowed in 2006 with preliminary data suggesting that the trade deficit actually narrowed at the end of the year. If current trends hold, the improvement in the trade deficit could add almost a full percent to GDP growth in the fourth quarter of 2006," says Diane Swonk, chief economist of Mesirow Financial, in her January edition of Themes on the Economy.
"The question is whether or not that improvement in trade will be enough to silence the cries for more protectionist policies. China has become a particularly large target now that it has surpassed Mexico as our second largest trading partner," notes Swonk.
In her January newsletter, Swonk highlights factors that have contributed to the hefty U.S. trade deficit and provides her outlook for the U.S. trade balance.
- Rising oil prices pushed up the cost of imports faster than we could cut consumption in recent years.
- The U.S. dollar is a reserve currency, which has put an artificial floor on the extent to which the dollar can depreciate.
- Productivity growth abroad picked up, which slowed the pass through of dollar depreciation into import prices much like it muted inflation in the U.S.
- Exports are forecast to rise 9.3% in 2007 after nipping above 10% in 2006. Shipments of equipment exports are expected to remain in double-digit territory.
- China has begun to show signs of coming into its own as an export partner, edging out the United Kingdom as our fourth largest export buyer in recent years.
- Imports are expected to rise a meager 4.2% in 2007, more than 2% behind the already slowing pace of 2006.
- Imports from Europe are expected to be particularly slow, given the persistence and magnitude of the movement in the dollar relative to the euro.
"The trade deficit is forecast to narrow for the first time since 1995 in 2007, and will finally play the role that it was intended to play – keeping our factories humming even as consumer spending moderates. The question remains whether those improvements will be enough to temper the rise in both isolationist and protectionist sentiment," concludes Swonk.
The January issue of Themes on the Economy as well as archived issues can be found at www.mesirowfinancial.com.
Mesirow Financial is a major independent financial services firm offering Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate. Founded in 1937, Mesirow Financial is an employee-owned, private company with more than 1,200 employees in locations across the country. The firm has nearly $23 billion in assets under management and nearly $150 million in capital. For more information about Mesirow Financial, visit its Web site at www.mesirowfinancial.com.
For more information, contact: Diane Swonk, Mesirow Financial, 312-595-7122, or Olga Camargo, Mesirow Financial, 312-595-7128.
The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2007, Mesirow Financial Holdings, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy an interest in any Mesirow Financial investment vehicle(s).
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