Tuesday's News Recap: U.S. Trade Deficit Shrinks, Economic Optimism Index Rises

News Recap | Written by CEP News | Aug 12 08 20:36 GMT |
(CEP News) - North American markets received some positive data out of the U.S. Tuesday with the release of trade figures, which showed that the U.S. trade deficit shrunk to its lowest level in three months, as well as an economic optimism index, which rose to its highest level since February. The U.S. monthly deficit, meanwhile, grew in July slightly more than expected. In Canada, the trade surplus rose higher than expected in June.

U.S. economic sentiment improved more than expected in August, following a record low in the previous two months, according to a report from Investor's Business Daily and TechnoMetrica Market Intelligence. The IBD/TIPP index of economic optimism bounced up 5.4 points to a reading of 42.8, up from 37.4 and above expectations of a 39.0 reading. Each of the three subcomponents saw improvement in the month, led by a jump in the economic outlook to 40.1 from the previous month's 29.4.

"Consumer confidence rebounded nicely in August thanks largely to falling gasoline prices," said Raghavan Mayur, president of TIPP, IBD's polling partner. "August's movement may be the start of a long-term rebound in consumer confidence, barring any major economic shocks or a re-ignition of the gasoline price bubble."

The U.S. trade deficit unexpectedly shrank to $56.8 billion in June, as a rise in exports to an all-time high offset another surge in oil imports, the U.S. Department of Commerce reported. The deficit was at its lowest level in three months, and lower than the $61.5 billion expected by economists.

"The narrowing in the trade gap in June was unexpected (in the advance release of second-quarter GDP, the Commerce Department assumed the trade deficit widened in the month)," economists from RDQ wrote in a client note. "At this point, we expect that second-quarter real GDP will be upwardly revised to 2.75% - 3% from the originally reported 1.9%."

Canada's trade surplus rose to $5.8 billion in June, thanks largely to higher export prices, even as the volume of goods shipped continued to decline, Statistics Canada reported. The increase was in line with the consensus estimate of analysts and higher than May's revised $5.2 billion surplus, which was previously reported as $5.5 billion.


Total exports in June soared to a new monthly high of nearly $43.2 billion, while total imports also established a new monthly mark of $37.4 billion, erasing the previous month's record of $36.7 billion.

According to the U.S. Treasury, monthly receipts totalled $160.494 billion and spending came in at $263.261 billion, resulting in a deficit of $102.767 billion for July. Economists were expecting the monthly deficit to come in at $90 billion, following the previous month's $50.7 billion budget deficit. The July 2007 deficit was $36.4 billion.

Job openings in the United States remained at the same level in June, growing 2.6%, the Bureau of Labor Statistics reported Wednesday. From June 2007, the openings rate has fallen from 2.9%. As of the last business day in June, there were 3.6 million nonfarm jobs available, according to the monthly Job Openings and Labor Turnover Survey. Total private job openings held steady at 2.7% from the prior month, still down 3.2% from one year ago, while government job openings fell to 1.9% from 2.0% in the prior month.

Retail sales advanced 2.6% on a year-over-year basis in the week ending Aug. 9, according to a weekly survey from the International Council of Shopping Centers (ICSC) and UBS Securities. Less dramatically, the Johnson Redbook retail survey recorded a 1.5% gain in the week compared to last year. On a week-over-week basis, however, ICSC-UBS sales fell by 1.1%, following a 1.2% advance in the previous week. Similarly, the Redbook report has seen August sales to date fall 1.9% from sales in July.

Speaking in an interview with CNBC, Minneapolis Federal Reserve President Gary Stern (voter) said the outlook on core and headline inflation has improved. Stern commented that the current drop in energy prices has alleviated inflation concerns and added that it would be "some time before we see some growth in the economy." When asked whether the U.S. economy was in a recession, he answered that "a declaration would be a close call."

In overnight news, the Department of Communities and Local Government (DCLG) reported that UK house prices rose 0.6% on a yearly basis in June, down notably from May's 3.0% growth rate as well as the expected 1.5% reading. May's figure was revised down from an initial reading of 3.7%.

Meanwhile, the Office for National Statistics (ONS) reported that the UK retail price index jumped 5.0% year-over-year in July. Economists had expected a slightly less pronounced gain of 4.9% after the index growth rate accelerated to 4.6% in June. July's RPI increase is the highest recorded since May 2001.

In an interview with the German newspaper Stuttgarter Zeitung, published on Tuesday, European Central Bank Governing Council member Axel Weber said he expects the inflation outlook in the euro zone to remain negative for a while and that the financial market crisis could last well into 2009. However, despite these dour forecasts, Weber stressed that there was no need for pessimism regarding the economy and speculated that inflation could fall below 2% this year and possibly into the next.

By Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Steve Stecyk, sstecyk@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Geoff Matthews, gmatthews@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, ssussman@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

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