U.S. Trade Deficit is on a Plateau
Alex Carrick
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Seed Newsvine |
U.S. Foreign Trade Deficit Drops to $699 Billion
The U.S. goods and services trade deficit declined in March 2008 to about the plateau level (-$700 billion) it has occupied over the past eighteen months. In February, the deficit had reached $750 billion. Embedded in the latest U.S. numbers is some good news and some not so good news.
Beginning with the not-so-good news first, the improvement in the U.S. trade deficit came about as a result of a significant decline in imports (-2.9% month to month). This is the sign of an economy that is in slowdown mode.
One indicator of flagging consumer demand has been the fact that the annualized trade deficit with China has dropped under $200 billion. It had been as high as nearly $300 billion as recently as last fall. Contributing to this change has been the almost 20% appreciation in the value of the Chinese yuan, versus the U.S. dollar, since the yuan was allowed to partially float in July 2005.
First Quarter GDP may need Revising Upward
As for the good news, the improvement in net exports in the U.S. means that first-quarter 2008 GDP growth is likely to be revised upwards slightly, from +0.6% to as much as +1.0%. This is even more reason to expect the Federal Reserve to sit on the sidelines for a while with respect to any further downward adjustment in interest rates. The need for further stimulus is now less apparent, while the world-wide concern about inflation has risen alarmingly as a result of food shortages.
More Tourists mean More Hotel Rooms
Over the past year, both the Euro and the Japanese yen have gained about 14% in value versus the U.S. dollar. Combine these currency shifts with the rise in value of the Canadian dollar and there are a lot of foreigners that are finding the U.S. an attractive site to visit these days. This is part of the reason for the burst in hotel construction that has been ongoing since last year.
