Record US trade deficit casts doubt on growth
Record US trade deficit casts doubt on growth
By Krishna Guha in Washington
Copyright The Financial Times Limited 2006
Published: October 13 2006 03:00 | Last updated: October 13 2006 03:00
The US trade deficit hit a record high for the second successive month in August, accentuating concerns about global imbalances and raising fresh doubts about the strength of US third-quarter growth.
Economists were yesterday revising down their estimates of growth in the quarter, which some now expect will fall below 2 per cent.
Meanwhile, the Federal Reserve issued its latest beige book, which suggested that consumer spending firmed in September and early October, but characterised growth overall as "moderate or mixed".
It said "nearly all districts reported that housing market conditions continued to soften" with rising inventories and additional incentives for buyers.
There was little anecdotal evidence to support the notion - advanced by some Fed officials - that housing activity might already be close to a low point.
The beige book reported: "The majority of districts characterised price pressures as contained." Labour market conditions were des-cribed as "taut", with skilled workers in short supply in some areas. Some regions faced shortages of professional, scientific and technical workers, for example. Wage growth was "generally modest".
The vast services sector "generally strengthened across districts since the last report", according to the beige book, while manufacturing activity remained "generally strong".
The somewhat dovish tone is consistent with the Fed keeping rates on hold for an extended period as it seeks to verify that inflation is easing as expected.
The August trade deficit hit $69.9bn, equivalent to an annual rate of nearly $840bn (€670bn, £450bn), figures released yesterday by the Department of Commerce showed. Part of the increase was driven by oil prices, which rose in August before falling sharply in September.
However, the volume of oil imported also rose and imports more generally were strong.
Exports remained healthy, growing at 2.3 per cent in August against 2.4 per cent for imports, but with imports starting from a much larger base the net effect was a widening deficit.
Haseeb Ahmed, an economist at JP Morgan, said: "It was a bit of a surprise in the sense that imports were much stronger than the market was expecting." He added that this boded well for inventories, which should partly offset the drag on growth.
JP Morgan still expects a recovery in net trade to support US growth next year.
Most economists predicted a rapid turnround in trade in the current quarter because of lower prices for oil and other commodities, which would in turn boost fourth-quarter growth.
"The narrowing of the nominal trade deficit will be substantial this quarter," said Peter Kretzmer, an economist at Bank of America Securities.
However, continued strength in US consumption could slow the longer-term adjustment.
By Krishna Guha in Washington
Copyright The Financial Times Limited 2006
Published: October 13 2006 03:00 | Last updated: October 13 2006 03:00
The US trade deficit hit a record high for the second successive month in August, accentuating concerns about global imbalances and raising fresh doubts about the strength of US third-quarter growth.
Economists were yesterday revising down their estimates of growth in the quarter, which some now expect will fall below 2 per cent.
Meanwhile, the Federal Reserve issued its latest beige book, which suggested that consumer spending firmed in September and early October, but characterised growth overall as "moderate or mixed".
It said "nearly all districts reported that housing market conditions continued to soften" with rising inventories and additional incentives for buyers.
There was little anecdotal evidence to support the notion - advanced by some Fed officials - that housing activity might already be close to a low point.
The beige book reported: "The majority of districts characterised price pressures as contained." Labour market conditions were des-cribed as "taut", with skilled workers in short supply in some areas. Some regions faced shortages of professional, scientific and technical workers, for example. Wage growth was "generally modest".
The vast services sector "generally strengthened across districts since the last report", according to the beige book, while manufacturing activity remained "generally strong".
The somewhat dovish tone is consistent with the Fed keeping rates on hold for an extended period as it seeks to verify that inflation is easing as expected.
The August trade deficit hit $69.9bn, equivalent to an annual rate of nearly $840bn (€670bn, £450bn), figures released yesterday by the Department of Commerce showed. Part of the increase was driven by oil prices, which rose in August before falling sharply in September.
However, the volume of oil imported also rose and imports more generally were strong.
Exports remained healthy, growing at 2.3 per cent in August against 2.4 per cent for imports, but with imports starting from a much larger base the net effect was a widening deficit.
Haseeb Ahmed, an economist at JP Morgan, said: "It was a bit of a surprise in the sense that imports were much stronger than the market was expecting." He added that this boded well for inventories, which should partly offset the drag on growth.
JP Morgan still expects a recovery in net trade to support US growth next year.
Most economists predicted a rapid turnround in trade in the current quarter because of lower prices for oil and other commodities, which would in turn boost fourth-quarter growth.
"The narrowing of the nominal trade deficit will be substantial this quarter," said Peter Kretzmer, an economist at Bank of America Securities.
However, continued strength in US consumption could slow the longer-term adjustment.
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