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One Month’s Not a Trend, But January’s Trade Data Could Point To A Slowdown in Global Trade

March 11th, 2010 Michael McDonough Comments off

Trade, the life blood of the global economy, has begun rebounding nicely since the trough of the global economic crisis.  But, January’s US trade data unexpectedly displayed a decline in both exports–the first decline in nine months–and imports, leading to a smaller US trade deficit, but also implying a potential slowdown in global trade.  As I said, one month does not indicate the start of a trend, but this is something that should be monitored moving forward.  The chart below illustrates the relationship between the U.S. trade deficit and the Baltic Exchange’s Baltic Dry Index (BDI).  As you can see the sharp decline in the US trade deficit during the economic crisis–indicative of a slowdown in global trade–coincided with a collapse in shipping rates as measured by the BDI.

US Trade Deficit (White Line) vs. the BDI (orange Line):

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Business Inventories Fall -1.0%

September 15th, 2009 Michael McDonough Comments off

July’s business inventories fell -1.0% to US$1.33bn, versus a Bloomberg consensus forecast of -0.9%. On a year over year basis the index has fallen -11.8%.  June’s release was revised down to -1.4% from -1.1%.  In July the inventory to sales ratio decline to 1.36, and is its lowest level since October 2008.  It is widely accepted that inventory replenishment over the remainder of the year will be a major driver of growth in the US.  But, without a corresponding uptick in consumer demand, these benefits may only be temporary.

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Leading Economic Indicators Show 4th Consecutive Monthly Increment, Philly Fed Survey Surprises to the Upside

August 20th, 2009 Michael McDonough Comments off

July’s leading economic indicators index rose 0.6%, experiencing its fourth consecutive month of gains. The Bloomberg consensus forecast was for an increment of +0.7%.  Rate spread, claims, and manufacturing hours all made positive contributions, while consumer expectations, M2, and permits were the biggest negative contributors.  The LEI tends to be a good forward looking indicator toward factory orders, industrial production, and the ISM.

The Philly Fed Manufacturing Index released at the same time, unexpectedly rose into positive territory with a reading of +4.2, compared to a consensus forecast of -1.0 and a previous reading of -7.5. The prices paid index increase to 10.0 from -3.5,the new orders index rose to 4.2 from -2.2, while the employment index declined to -12.9 from -25.3. The manufacturing sector as measured by the NY and Philly Fed appears to have bottomed on marginal economic improvements around the globe, and should continue to experience modest gains over the near-term as depleted inventories are replenished.

Source: Philly Fed

Source: Philly Fed

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Trade Balance Widens to -US$27.0bn

August 12th, 2009 Michael McDonough Comments off

The June trade balance widened to -US$27.0bn compared to -US$26.0bn the previous month, and a consensus forecast of -US$28.6bn.  Exports rose +2.0% in the month to US$125.8bn, but were more than offset by an even bigger increase in imports at 2.3% to US$152.8bn.  The primary driver behind June’s widening was higher energy related prices.  The average price for oil imported into the US rose for the fourth straight month reaching US$59.17/barrel.  The increment in US exports can be attributed to foreign demand for capital goods and industrial supplies.  US food related exports also hit levels not seen since October 2008.  Finally, this data, which was marginally better than anticipated in the BEA’s advanced GDP release, could have a marginally positive effect on the preliminary GDP report scheduled for release on August 27th.

TradeSource: Bloomberg

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Leading Indicators Up: A Good Sign for the Economy

July 20th, 2009 Michael McDonough Comments off
The index of leading indicators was up in June by 0.7%, or slightly above the market consensus of 0.5%. At the same time May’s number was revised up to 1.3% from 1.2%. This is the third consecutive month of gains for the index. In the release the Conference Board was quoted as saying, “The behavior of the composite indexes suggest that the recession will continue to ease and that the economy may begin to recover in the near term.” The LEI tends to be a good forward looking indicator towards industrial production and the ISM. Seven out of ten of the LEI sub-components were positive for the month with the biggest gains coming from the yield curve and building permits; while money supply was the weakest component. The Conference Board also released June’’s coincident and lagging indices, both of which were down.
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