U.S. Trade Deficit Continues to Retreat
U.S. Trade Deficit Continues to Retreat
The U.S. international trade deficit narrowed to US$58.2 billion in March from a downwardly revised US$61.7 billion (prior US $62.3 billion) In February. Going into the March release, the deficit was expected to narrow to US$61 billion from February’s initially reported level.
Imports declined 2.9%, more than reversing February’s 2.6% increase. Exports also declined, falling 1.7%, although this was after 12 straight monthly gains. The drop in exports reflected declines in automotive and aircraft exports. Imports of capital goods declined in March.
The oil import price posted another record in March, increasing to US$89.85/bbl versus US$84.76/bbl in February, although the value of petroleum imports dropped in March suggesting a drop in import volumes.
Although the level of exports was lower in the first quarter than originally estimated by the BEA, imports were substantially weaker, suggesting an upward revision to first-quarter GDP to around the 1% area from 0.6%.
Stripping away price effects, the real (chained 2000 dollars) deficit was 3.7% lower, on average, over the January/March period compared to the fourth quarter. This falls in line with our forecast calling for net trade to be a significant add to U.S. economic growth this year. Although a fiscal stimulus-related pop in imports may occur in the third quarter, it does not change our view that export growth will outpace that of imports in 2008. The strength in net trade is expected to be a partial offset to the weakness in other areas of the economy, like residential construction.
RBC’s U.S. confidence index rebounds in May
The RBC CASH Index for May rose for the first time in five months and by the largest amount in seven months. The overall index rose 9.5 points to 39 from 29.5 in April. Although the improvement is encouraging, the level of the index represents the third lowest reading in confidence on record and still well below a recent peak in this measure of 103 recorded in February of 2007.
The improvement in the overall index resulted from three of the four major sub-components registering a higher reading. The biggest improvement occurred in the expectations sub-component. Although the index remained in negative territory at -24.1, this represents a marked improvement from a record low reading in April of -48.3. The investment sub-component improved as well, but more moderately, to 60.7 in May from 56.4 in April, which implies a slightly greater willingness for households to make major purchases. The current conditions sub-component rose modestly as well to 57.4 from 54.6 over the same period. The jobs sub-component was the only one to move lower; it dropped in May to 93.7 from 97 in April. Employment can often lag other economic indicators through the business cycle and, thus, may show stronger readings in subsequent months.
The rise in confidence as implied by the RBC Cash Index is encouraging because it is occurring at a time when the government starting to distribute the tax rebate cheques. The intent of this fiscal stimulus is to get households spending to prevent weakness in the first half of this year and a likely decline in activity in the second quarter from persisting over the second half of the year. However, the level of confidence still remains close to record low readings. As a result, the success of the fiscal stimulus in boosting consumer spending will be better assured if this index continues to trend higher in subsequent months.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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