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Trade Deficit Widens Sharply

"Affirmation without discipline is the beginning of delusion." ~ Jim Rohn

Trade deficit widens sharply

The markets took a late-winter slide on Thursday after the Commerce Department reported that the U.S. trade deficit had broadened well above estimates in January. China also showed a trade deficit, its first in nearly a year. Meanwhile, consumer credit, retail sales, and business inventories all showed healthy increases.

Trade deficit jumps 15.1%

The U.S. trade deficit expanded 15.1% to $46.3 billion in January, its highest level in seven months and considerably above analyst estimates. Imports rose 5.2%, about twice as fast as exports. While rising exports to Canada and Japan narrowed the U.S. deficit with those countries, a stark drop in exports to China caused a 12.5% widening in the U.S. trade deficit with that country. China itself reported a surprise trade deficit in February, its first in 11 months. While exports in that country were up only 2.4% from a year ago, imports shot up 19.4%. Analysts believe that China's economic statistics in January and February are generally distorted by the Lunar New Year holiday-a time when Chinese exporters tend to take vacations and factories face seasonal shutdowns.

Americans using more credit

Consumers increased their borrowing by $5.0 billion in January, much more than analysts had predicted-signifying greater confidence in the economy. Borrowing for big-ticket items such as cars, college, and vacations increased $9.3 billion during the month after rising $2.1 billion in December. This marked the sixth straight monthly increase in non-revolving debt.

Retail sales growth a positive sign

Retail sales rose 1.0% in February-the strongest growth since October. Overall sales were 8.9% above their year-ago level. Retail sales figures for both December and January were revised upward based on higher spending at building supply stores, restaurants, and clothing stores. The only major segments that haven't seen sales gains over the past year are furniture, electronics, and appliance and department stores, likely due to the continued slowdown in the housing industry.

Business inventories rise

Total business inventories rose for the 13th straight month in January, by 0.9%, in line with expectations. The long stretch of increases pushed stockpiles to $1.5 trillion in January-a level many economists feel is healthy for this stage of the recovery. Some of the increase is related to food and energy inflation, although these weren't significant during the month.

The economic week ahead

A plethora of releases will be out next week, including results of the Federal Open Market Committee meeting (Tuesday), the Producer Price Index and the residential construction spending report (Wednesday), and the Consumer Price Index, industrial production data, and the Conference Board's report on economic leading indicators (Friday).

Markets Update

For the week ended March 11, the S&P 500 Index declined 1.3% to 1,304 (for a year-to-date total return-including price change plus dividends-of about 4.1%). The yield of the 10-year U.S. Treasury note decreased 9 basis points to 3.40% (for a year-to-date increase of 10 basis points).