Category Archives: Trade Deficit

ADP Payroll Estimate, Economic Indicators, Help Wanted Online, Trade Deficit

December ADP Jobs, Conference Board Help Wanted Online and November Trade Deficit

KEY DATA: ADP: 241,000/Help Wanted Online: -79,200/Trade Deficit: $39 billion ($3.2 billion narrower)

IN A NUTSHELL:   “A solid labor market coupled with a narrowing trade deficit points to continued strong growth ahead.”

WHAT IT MEANS:  Employment Friday is this week and the first guess at the private sector number comes from ADP, which estimated that employers added workers solidly in December.  That said, the government’s data and the ADP numbers sometimes diverge widely.  For example, ADP estimated that private sector payrolls rose by 227,000 in November while the government put it at 314,000.  But the 3-month trend has tended to be fairly close and that raises a question about Friday’s jobs report.  For the fourth quarter, ADP puts total private sector job gains at 710,000.  After two months, the government has it at 550,000, a difference of 160,000.  Could December’s increase be below 200,000?  Possibly, though I think it will be between 225,000 and 250,000.  Companies of all sizes are adding jobs and that should mean continued solid payroll gains.  I remain optimistic about the job market.

Helping drive the economy forward, regardless what investors might think, is a rapidly narrowing trade deficit.  Exports are beginning to suffer from the weakness around the world, but that is being offset by declining petroleum imports.  The drop in exports is not a major concern as most of the decline came from Boeing shipping were planes.  That is likely just a timing issue.  Vehicle shipments were off as well and that may reflect slower world growth.  On the import side, the only category that posted a sharp gain was cell phones.  Thanks Apple.  Adjusting for prices, it looks like the trade deficit will be fairly stable.  There have been concerns that trade would slow growth in the fourth quarter but right now that is not the case. 

The Conference Board’s Help Wanted Online Index plunged in December after having soared in November.  Actually, this one month up and one month down pattern seems to be a routine that is odd given the consistently strong payroll increases.  These data are supposed to be seasonally adjusted, so I guess I will simply say that the decline in online want ads is a concern that should unwind in a month.

MARKETS AND FED POLICY IMPLICATIONS: The recent data have been disappointing but the ADP and trade numbers were better than expected.  Indeed, today’s reports raise more questions than they answer.  Friday is only two days away so we will have a better picture of the labor market soon enough.  What investors will make of these reports is anyone’s guess.  I don’t even think investors know what they are thinking.  The markets are reacting emotionally so it’s best to simply step back and not make too much of the doings there.  And don’t forget that Wall Street and Main Street have been delinked for a long time so making a judgment about the economy based on stock movements is silly.  As for the Fed, the focus is still on wages but the issues in Europe and the continued low inflation rate are complicating things.

Economic Indicators, Supply Managers’ Non-Manufacturing Index, Trade Deficit

September Supply Managers’ Non-Manufacturing Survey and August Trade Deficit

INDICATOR: September Supply Managers’ Non-Manufacturing Survey and August Trade Deficit

KEY DATA: ISM (Non-Manufacturing): -1 point; New Orders: -2.8 points; Employment: +1.4 points/Trade Deficit: $40.1 billion ($0.2 billion narrower)

IN A NUTSHELL:  “With all components of the economy expanding and with exports growing, it should be no surprise that firms are hiring.”

WHAT IT MEANS:  The September jobs report was better than expected but it should not have been.  The economy continues to grow across the board.  The Institute for Supply Management’s index of business activity in the construction and services sectors may have moderated a touch in September, but the level is still quite solid.  New orders grew at a slightly slower pace but there was a sharp acceleration in export demand.  The level of demand is strong enough that firms are ramping up their hiring, something we saw in the payroll data.  That is helping keep backlogs under control and order books grew at a more moderate pace.

Despite issues facing so many countries, our trade situation continues to improve.  The trade deficit narrowed slightly in August, but the big story was exports: They rose to a new record level.  Okay, the gain was modest, but new highs are new highs.  The increase was driven by rising sales of capital and consumer goods.  There was a surprisingly large decline in both vehicle and farm exports.  The surge in energy production is allowing us to dig deeply in our petroleum deficit.  We sold a lot more services as well.  Our purchases of foreign goods also were up, but not greatly.  Jumps in aircraft and consumer goods demand outweighed declines in food, oil and vehicles.  The revitalized domestic vehicle sector is helping out here.  Adjusting for inflation, the deficit has narrowed sharply in the third quarter, implying that trade should add solidly to growth, which could be as high as 3.5%.

MARKETS AND FED POLICY IMPLICATIONS: Everything seems to be coming together, except wages.  The increase in payrolls is generating a solid rise in total hours worked and that, conjunction with some rise in wages over the year, is helping generate moderate income gains.  But if we are to really get consumers spending, we need demand to come not just from the new workers, but also from those already employed.  And that requires businesses paying the current workers more.  Understandably, firms don’t want to do that, especially since they have not had to for so long.  But with the unemployment rate coming down, scattered labor shortages are appearing in some industries, occupations and geographic areas.  There is little reason to think the decline in the unemployment rate we have seen over the past two years will not continue over the next year and that means by next summer, we should be at full employment.  If the Fed waits until it sees the whites of wage-inflation’s eyes to pull the trigger, it will be overrun.  But for now, firms will continue to hold the line and the Fed will continue to continue to keep rates low because of less than stellar growth, a strong dollar and low inflation.  As for investors, today’s numbers should ease some of the wounds they have suffered recently.

Economic Indicators, Trade Deficit

June Trade Deficit

KEY DATA: Deficit: $41.5 billion ($3.1 billion narrower); Exports: up $0.3 billion; Imports: down $2.9 billion

IN A NUTSHELL:  “The narrowing of the trade deficits indicates growth was stronger than expected though the softening in our demand for imported products raises some questions.”

WHAT IT MEANS: The second quarter is past but we are still getting a picture of what happened.  The latest number is the June trade deficit, which was a lot less than expected.  On the one hand, that is good news.  It looks like the negative impact that trade had in the initial GDP estimates will be revised downward, meaning that growth was likely higher than thought.  However, the details are a bit strange, especially on the import side.  The decline in purchases from the rest of the world was largely across the board.  Demand for foreign capital and consumer goods, vehicles and industrial supplies were all off.  Moderating petroleum demand, which is a trend that should continue as we replace foreign products with shale energy, played a role but is only a partial explanation.  With the economy growing, consumer and business spending rising and vehicle sales robust, there is every reason to believe that imports will rebound going forward.  On the export side, we sold a lot more aircraft, chemicals and medical products but not much else.  Looking across the world, the Chinese economic issues have them ramping up their export machine while their purchases of U.S. products remains limited.  Our trade deficits with most of the rest of the world either narrowed or turned to a surplus.

MARKETS AND FED POLICY IMPLICATIONS: The sharp narrowing in the trade deficit is something I will take every month, but I would prefer it happening by exports growing a lot faster than imports.  That would be reflecting strong economic growth around the world.  It is doubtful that buying less from foreigners is a trend as the U.S. economy seems to be picking up steam.  So look for the deficit to widen going forward and that could mean the foreign sector will restrain growth.  I still expect third quarter to show a growth rate of at least 3% as consumers and businesses keep buying and investing.  With the supply managers telling us the service sector is getting on a roll, that missing link may no longer be absent without leave.  If services spending, which is 45% of the entire economy, is indeed expanding more rapidly, then we should get growth between 3.5% and 4% during the second half of this year and in 2015.  But the Fed seems to be in “show me” mode so a forecast of stronger growth is just that, a forecast.  Until it occurs and the labor market tightens to the point where wage inflation actually shows up, this Fed seems willing to keep rates low.  As for investors, we have Russia, earnings and mergers and acquisitions roiling the markets so who knows what they are thinking.