Jobs and Trade: News, But Not New
Neither the trade deficit news, nor the report on new claims for unemployment assistance should surprise us. They shouldn’t upset us too much either.
The trade deficit widened 15.1% in January, the latest month for which we have data. The gap between imports and exports rose to a near record $46.3 billion, up from $40.3 billion in December. This was despite a record level of exports. The problem stems from two different sources. First: importers appear to be stockpiling goods and raw materials in anticipation of the economy’s faster growth later this year. Clearly they don’t want to miss out on that higher activity due to lack of inventory. Second, and perhaps more obvious: the recent run up in oil prices and driven the value of petroleum imports up way beyond expectations. Plus, anytime the economy accelerates we draw in more oil. So both prices and volumes rose.
Should we be concerned? A little. But not yet too much. An improvement in our net trade position – the deficit dropped – during the last quarter of 2010 was a major contributory factor to the jump we saw in GDP. So, to the extent that we see a repeat of January’s reversal during the rest of the first quarter this year, we will also see a corresponding drag on GDP. Indeed since oil prices have jumped around since January we can almost guarantee trade will be a lot more negative than it was late last year. Like many things in economics a deterioration in trade is a useful sign of an otherwise healthy economy. We tend to import more as we grow. So rising imports suggest that businesses are preparing to sell more, and this is a good omen. Of course we would like to export more as well to keep the imbalance to a minimum, but boosting exports is a longer term project and is not a primary solution to our economy’s ills anyway.
On the jobs front today’s news was also a mixed bag. On the surface the 26,000 increase in new claims for unemployment assistance is not good, but the total stayed below 400,000 and there were mitigating circumstances that suggest this is more a statistical blip than a reversal of the recent improving trend. That 400,000 barrier is important because we need to keep new claims trending down towards a much more healthy 325,000 – 350,000. But the bigger news is that this week’s claims number is distorted by the oddities of spring break holidays in New England, where large numbers of people with jobs in education were able to make a claim for the one week covered by that break. The biggest jump in claims were all centered in the New England states and will most likely be reversed next week. Without this aberration the data was much more benign, which suggests that the all-too-slow upturn in the jobs market is still on track. Let me repeat myself: that improvement is incredibly slow moving and weak by historic standards and continues to cast a long shadow over the economy. The current attempts to cut government jobs threatens to throw what forward momentum we have into reverse, so we have to pay particular attention to this data over the next few months.
One last thing: household debt continues to decline across the US economy, although the latest data shows that the decline is now slowing considerably. US households have been cutting debt for eleven straight quarters, but the fourth quarter’s annualized decline of 0.6% is the slowest drop since the third quarter of 2008. One thing to note was that the decline was driven almost entirely by a 1.3% drop in mortgage debt. In contrast, consumer credit returned to a growth path by increasing 2.0% at the same time. The same government report shows household net worth to have grown $2.1 trillion, back up to $56.8 trillion. This is still below the all time peak of 65.9 trillion set back in early 2007, with rising stock prices offsetting some of the drop in home values since then. It bears repeating that these figures don’t serve us well when we look at the entire economy simply because that wealth is so concentrated. That a small number of people have witnessed a solid recovery in their balance sheets does not automatically extend to a generalized feeling of well-being. The massive inequality of incomes and wealth now built into our economy inhibits growth by marginalizing the lower end consumer who is likely to spend a greater portion of their income, while privileging the higher end consumer who is likely to save more at a time when the economy is already awash with cash for investment. Yet that cash sits under deployed. This is why my view on policy remains that we focus on getting demand pumped up. I seem to be, once more, in the minority though, so look for the economy to underperform for a while yet.
