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Brian Wesbury
Chief Economist
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Bob Stein
Deputy Chief Economist
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 | The trade deficit in goods and services increased to $47.8 billion in November |
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| Posted Under: Data Watch • Trade |
Implications: The trade deficit surprised to the upside in November, coming in near the middle of the range that it's been in since mid-2010. Exports ticked down slightly and imports rose due to oil and other petroleum products. As a result, net exports are probably going to make a positive contribution to real GDP growth in the fourth quarter and to 2011 as a whole, but not very much. In 2012, the trade deficit is likely to be caught between two powerful opposing forces. First, economic growth should accelerate, putting upward pressure on the trade gap. But, second, the massive depreciation of the US dollar over the past decade should continue to make the US an attractive place from which to export. That's why Japanese automakers are increasingly using the US as an export hub. Companies like Caterpillar, Siemens, and Electrolux are noticing that unit labor costs are very low in the US, resulting in their bringing activity here that was previously done abroad. Our best guess right now is that the trade deficit expands modestly in 2012. In other trade news this morning, prices were generally falling in December, with import prices down 0.1% and export prices down 0.5%. Core import prices, which exclude oil, were unchanged, while core export prices, which exclude agriculture, were down 0.2%. However, the trend over the past year is still upward, across the board. Import prices are up 8.5% versus a year ago while prices ex-oil are up 3.3%. Export prices are up 3.6% in the past year, 4% excluding agriculture. Loose monetary policy means this trend is likely to continue.
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| | Retail sales grew 0.1% in December |
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| Posted Under: Data Watch • Retail Sales |
Implications: Retail sales grew less than the consensus expected in December, but are still consistent with solid economic growth. Surprisingly, autos were the strongest part of sales, which signals less discounting in that sector in December than previous reports suggest, a bullish sign of consumer demand for big-ticket items. The other strong sector for sales in December was building materials, which may have been a function of unusually warm weather in much of the country. The largest drag on December sales was at gas stations, due to lower prices at the pump. Sales were also down at general merchandise stores and for electronics/appliances, which probably reflects steep discounting amid Christmas sales competition. Overall sales are up in 17 of the last 18 months. Sales declined ex-autos, but that's the first time in 19 months. This kind of consistent and continuous growth is very rare. Typically, retail sales have three or four negative months every year, even in good years. "Core" sales, which exclude autos, building materials, and gas, fell for the first time in 17 months, but "core" sales for Q4 were up at a 5.3% annual rate versus the Q3 average. In other recent retail news, chain store sales continue to look good, up 3.3% versus a year ago according to Redbook Research and up 2.8% according to International Council of Shopping Centers. Remember, these figures show same-store sales; total sales are up more than that. In other news this morning, initial claims for unemployment insurance increased 24,000 last week to 399,000. The four-week average is 382,000, which is much closer to the underlying trend. Continuing claims for regular state benefits rose 33,000 to 3.63 million. The economy is getting better, but it never does so in a straight line.
Click here for the full report.
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| | Nonsense Arguments About Jobs |
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| Posted Under: Monday Morning Outlook |
The better the employment reports get, the more ridiculous the assertions from those who deny the improvement.
Take Friday's report, which was the best since the economic recovery started. Private payrolls rose 212,000, while the number of hours per worker and earnings per hour went up as well. As a result, total workers' earnings are more than keeping pace with inflation. Even the unemployment rate went down again and is now at 8.5%, almost a full point below where it was a year ago.
These numbers are pretty good. Nonetheless, anyone who stated the obvious, and pointed out the good news, was berated by media and especially in the blogosphere. Our observation is that most of these arguments against optimism are driven by politics and border on the ridiculous.
One claim is the numbers are being manipulated by the government to help President Obama...if President Bush was in office, unemployment would be 12%.
But if the numbers are being manipulated, they're doing a pretty poor job. Why not claim a higher growth rate for civilian employment – which usually happens anyhow in normal recoveries – which would let them show some combination of a lower unemployment rate or higher labor force participation rate? And why would they usually have to revise up their payroll numbers after the initial report each month? Wouldn't they want the good news out as soon as possible? Of course, we point this out knowing full well that the conspiracy crowd already thinks we are part of the conspiracy.
Another argument is that the "real" unemployment rate is 15.2%, not 8.5%. This is a reference to the Labor Department's U-6 rate, which includes discouraged workers, marginally attached workers, and those working part-time who say they want full-time jobs. But as we have explained many times before, since its inception in 1994, the "real" unemployment rate (U-6) is always, in both good times and bad, higher than the regular unemployment rate – by between 65-85%. Right now it's 79% higher. In other words, the so called real unemployment rate tells us nothing we wouldn't otherwise know by just looking at the regular unemployment rate.
Others are saying the unemployment rate is down only because people are leaving the labor force. This has resonated lately, because the labor force has contracted by 170,000 in the last two months. But those monthly numbers are volatile and the jobless rate is down 0.9 points from a year ago, during a period when the labor force expanded 780,000, or 0.5%.
One recent claim is that a "real" recovery would have 250,000 jobs per month. This is a made up number which means nothing other than "we aren't there yet." We all want more growth, not less. But, just because the number of new jobs has not reached a non-scientifically based threshold means nothing. Let's not make up reasons to be disappointed when the numbers are getting a little bit better every month.
Some pessimists notice that this past month, a job category for couriers & messengers was up 42,000, so that shows some problems when these jobs disappear next month. But the same temporary pop in couriers & messengers happened last December and job creation accelerated this year. Moreover, don't let that one category deflect attention from the fact that every major category of jobs increased in December, from construction and manufacturing to retail and leisure.
We get it. The job market isn't perfect. We wish we were back at 5% unemployment right now and there are plenty of reasons to point fingers and argue that things should, and could, be better. We do that plenty. But using each monthly employment report as a pretext to put forward spurious arguments and vent about our national state of affairs, which we all knew about in the days before each report as well, suggests an attempt to politicize the economic data. And as we all know, facts and politics don't always mix very well.
Click here for a printable version.
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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