As the economy continues to hollow out, with industrial jobs shifting to low-wage countries overseas, the monthly trade deficit tells of a high and growing hurdle for the country’s workers to overcome.
With an annual shortfall in the range of $800 billion, few analysts are willing to say America can be self-supporting in producing its own goods. And there are few signs of much improvement.
A slight exception has come in recent months as exports were lifted by the strength of economies in Europe and Asia. The March trade deficit fell to $62 billion, the lowest level since August.
Economist Lynn Reaser says the trade chasm will widen once more in Friday’s report for April, to around $65 billion, because rising oil prices mean a higher tab for fuel from overseas.
“The good news is that exports still are doing well, because of economic recoveries overseas and a slightly weaker dollar,” said Reaser, of Bank of America’s Boston investment strategies group.
The pickup in exports is important for the Midwest, she said, because it remains an industrial powerhouse and because agricultural output is sent to many lands, “a big benefit to the farm sector.”
The bad news: The overall trade situation remains so iffy, according to Reaser, that it will detract from second-quarter growth in gross domestic product.
With a little more than three weeks remaining before members of the Federal Reserve meet to decide on monetary policy, it’s still a toss-up whether they will boost short-term interest rates for a 17th time in less than two years.
Arguing against action were Friday’s payrolls data, which were less than stellar, said banking consultant Jeff Caughron.
His assessment: The numbers “create a greater likelihood of at least a pause in the tightening cycle.”
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The stock market is looking ahead to second-quarter corporate profit reports, which roll out in less than a month. Forecasts are for another period of double-digit earnings growth, but momentum for profits has been weakening.
The next few weeks will provide an early indication of problems, as companies engage in confessions of expected shortfalls. Such warnings were relatively few three months ago, helping to fuel a solid spring rally.
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(c) 2006, Chicago Tribune.
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AP-NY-06-02-06 1746EDT
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