Plus: Leading Economic Indicators Post Modest Improvement, U.S. Becomes China’s Top Export Market, Congress Works to Strengthen U.S.-Russia Trade Relations and Jobless Claims Drop.
Leading Economic Indicators Grow at Slower Pace
The index of United States leading economic indicators rose in October at a slightly slower pace than in recent months, as concerns over fiscal policies have led some businesses to soften their investment plans. The Conference Board’s Leading Economic Index (LEI) for the U.S. rose 0.2 percent last month, following a downwardly revised 0.5 percent gain in September and a 0.4 percent drop in August.
October’s reading exceeded expectations, as economists polled by MarketWatch had forecast the LEI to rise by only 0.1 percent for the month. However, the long-term trend has been slowing growth, with the LEI rising 0.5 percent in the six months leading to October, down from 1.8 percent in the prior six-month period.
“Based on current trends, the economy will continue to expand modestly through the early months of 2013,” Ken Goldstein, an economist for the Conference Board, noted. “Hurricane Sandy, which is not yet fully reflected in the LEI, will likely adversely affect consumer spending and home building in the short-term, but it’s too soon to gauge the net impact. In addition, the outcome of the fiscal cliff debates is another factor which could alter the outlook.”
The LEI is a weighted gauge of 10 indicators tracking business cycle peaks and troughs. Four of the 10 indicators improved in October, led by the interest-rate spread, the leading-credit index, weekly jobless claims and manufacturers’ new orders for core capital goods. Meanwhile, manufacturing hours and manufacturers’ new orders for consumer goods and materials remained relatively unchanged.
“Some businesses are pulling back on concern that hurtling over the fiscal cliff will damage the economy,” Bloomberg News reports. “Spending on equipment and software was little changed from June through September, the weakest reading since the second quarter of 2009…”
U.S. Power Grid Vulnerable to Security Threats
A newly released report by the National Research Council warns that the U.S. power grid is vulnerable to serious damage in the event of a terrorist attack, with potentially devastating results, such as long-term blackouts and disastrous economic effects.
Security breaches in U.S. electrical systems, which are not designed to withstand or quickly recover from damage, could result in billions of dollars in losses, and attackers would face little risk of detection or interdiction, the report claims.
The findings underscore how the power delivery system is susceptible to attacks, and states that hundreds of miles of the power grid’s facilities are unguarded. Important equipment is “decades old” and does not have the necessary sensing and control technology for limiting outages caused by natural disasters or attacks. Critical systems such as sensors, controls and communications, are also at risk of cyber attacks, according to the National Academies.
“Considering that a systematically designed and executed terrorist attack could cause disruptions even more widespread and of longer duration, it is no stretch of the imagination to think that such attacks could produce damage costing hundreds of billions of dollars,” M. Granger Morgan, a professor at Carnegie Mellon University and chair of the committee that authored the report, cautioned.
A main concern is high-voltage transformers, which are vulnerable from within and outside the substations where they are located. Due to their large size, difficulty to move and replace, and because most are no longer made in the U.S., new transformers could take a long period — from months to years — to replace. One proposed solution involves developing, manufacturing and stockpiling a family of universal recovery transformers “that would be smaller and easier to move.”
U.S. Surpasses Europe as China’s Top Export Market
The Chinese Commerce Ministry recently announced that the U.S. has overtaken the European Union as China’s largest export market, as the ongoing debt crisis has weakened demand across Europe.
“Thanks to the U.S., China exports beat consensus last month, rising 11.6 percent year over year while consensus was 10 percent,” Forbes explains. “No one compares to the U.S. when it comes to China shipments. Growth to the U.S. improved by 9 percent [year-over-year] from 5.5 percent in September, while EU exports declined again, this time down 8.1 percent instead of the 10.7 percent drop in September. China’s third largest market, Japan, slowed to 1.1 percent from 2.2 percent.”
Overall, China’s global trade surplus expanded to $32 billion in October, up from $27.7 billion in September. By comparison, the U.S. has a $41.5 billion trade deficit with the world. The U.S. imports more goods from China than any other country, including $37.3 billion worth of imports through September 2012.
“In the first ten months of 2012, the country’s total foreign trade expanded 6.3 percent to $3.16 trillion compared to the same period last year,” CNN reports. “China had set a target of 10 percent growth in foreign trade this year, however the country’s commerce minister has said that will be difficult to achieve.”
Congress Moves to Normalize Trade Relations with Russia
The U.S. House of Representatives approved a bill that would dismantle Cold War-era trade restrictions with Russia, a move supported by major American firms like Caterpillar and Boeing, Bloomberg Businessweek reports. The Senate is expected to approve the bill in coming weeks.
The Russia and Moldova Jackson-Vanik Repeal Act (H.R. 6156), which passed in a 365-to-40 vote on November 16, would establish “permanent normal trade relations,” or PNTR, with Russia, while also requiring the U.S. president to expose human rights violators, according to Reuters. Russia is still under reduced trade limits due to a 1974 law that denied Communist and former Communist nations from being favored trade partners because they refuse their citizens the right to freely emigrate or travel.
Last year, the U.S. exported $8.3 billion in merchandise, including machinery, aerospace goods, autos and electrical equipment, to Russia. If the bill passes, this number may increase to $22 billion by 2017.
The “name and shame” provision of the bill requires President Barack Obama to publicize the names of Russians implicated in human rights abuses. Named individuals would also have their assets frozen. The Russian Foreign Ministry has decried this provision as “a flagrantly unfriendly and provocative step” and promised retaliation should it pass, the New York Times notes.
Before the vote, the National Association of Manufacturers (NAM) sent House members a note supporting the bill’s passage. “It is time for Congress to pass PNTR legislation so manufacturers can fully enjoy the new opportunities and legal protections from Russia’s World Trade Organization (WTO) membership,” NAM International Trade Policy Subcommittee Chairman Greg Slater said. “This bipartisan legislation will put us on an even playing field with one of the largest emerging markets in the world and help us continue to grow exports.”
Jobless Claims Plunge
New initial jobless claims fell sharply in the latest week reported, indicating that the temporary spike in unemployment claims caused by conditions stemming from Hurricane Sandy may be subsiding. According to the U.S. Department of Labor, unemployment claims for the week ending November 17 plummeted by 41,000, to a total of 410,000.
However, the four-week moving average, which smoothes out volatility and provides a clearer long-term picture of the job market, increased by 9,500 claims to a total of 396,250.
“Economists said that while the still-high level of claims reflected the storm’s impact, it also likely pointed to more fundamental problems in the jobs market,” Reuters notes. “The claims report covered the same week when the Labor Department collects data for its estimate on hiring in November. It suggested that report, due on December 7, could prove soft, although not all analysts expect a significant storm impact. Non-farm payrolls grew 171,000 in October.”
Jobless claims for the prior week increased by 90,000 as the hurricane’s effects on employment were at their strongest. Of those claims, around 75,000 originated in New York and New Jersey alone.