The widening of the US trade deficit is
not unexpected given the travails of the global economy. The US
manufacturing community continues to seek out new markets and has
continued to take advantage of the weaker dollar as they expand their
reach but they can’t overcome the fact that many of the nations that
have been export destinations for the US are wallowing in their own
economic crisis. The demand for US goods in Europe has been tumbling all
year and now there is evidence that growth has slowed enough in Asia to
affect the US producer. The trade deficit expanded for the first time
since March – moving from 41.9 million to 42 million. The trade numbers
with Europe were off significantly – 6.6% from the previous month. Given
that the
US once counted Europe as 25% of its export market and 25% of its import market this decline hurts.
At
the same time that business with Europe has slowed there have been
similar declines in the level of exports to Asian and Latin American
trade partners although the declines thus far have not been as steep.
The European slump is actually costing the US far more than it would
appear. Not only does the US lose out on its ability to sell to the
Eurozone nations but so does every other country in the world. The Latin
states once counted the most troubled nations in Europe as their best
customers but there has been a profound collapse in trade and that means
that the states of South America have less with which to buy products
from the US or
anywhere else. The
slowing Chinese economy has cost the nations that once sold their
commodities to the Chinese and that translates into less purchasing of
US goods from countries such as Australia, Canada, Chile, Brazil and
many others. This is a vicious cycle that only trends downward.
If
there was any sort of silver lining in the latest trade numbers it has
been that import prices fell a little as the price of crude oil was a
little less in July (but then it started to climb again in August). The
US manufacturer has been able to protect their domestic market a little
better these days as the dollar weakness makes it hard for other nations
to compete but the truth is that most of the other global currencies
are weak as well and that makes the dollar a lot less protective than it
has been.
Analysis:
For the last few years the only bright spot for the economy was in the
export numbers. The US manufacturer and the service providers had been
taking full advantage of the weaker dollar and the continued expansion
of other economies and there were export records set month after month.
Now that the rest of the world is slipping into their own version of
economic slump the US is losing access to that new found market and the
impact on US growth is significant. The expectation is that there will
be growth in the last six months of the year that will crest at no more
than 1.4% - down from the 1.7% that had been projected earlier. It is
all but certain that the GDP growth for the year will be around 1.5% and
that is awfully anemic for an economy that was supposed to be heading
for some kind of recovery by now. This is not entirely the fault of the
US given that the decline is attributable to the slide in exports but
here is where the interconnections come into play. The nations that buy
from the US can’t do much purchasing if they are not selling.
Armada Corp. Intel.
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