Weekly Industry Crib Sheet: Trade Deficit Spikes on Increased Purchases from China

November 18, 2013

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The nation’s trade imbalance widened more than expected in September, exacerbated by a $30.5 billion trade deficit with China -- the largest ever. The gap increased 8 percent to $48.1 billion as imports rose to its highest level in nearly a year, according to the U.S. Department of Commerce figures.

Economists polled by the Reuters news agency had expected the trade imbalance to widen slightly to $39 billion in September. The trade gap climbs to $50.4 billion when adjusted for inflation, the largest since May.

September’s deficit numbers suggest that the government will probably lower its initial third-quarter estimate of the nation’s gross domestic product. Trade contributed 0.31 of a percentage point to the economy’s 2.8 percent annualized growth rate in the third quarter.

“Third-quarter GDP growth will need to be revised lower,” economist Paul Ashworth of Capital Economics in Toronto told Reuters.

America’s record-setting trade deficit with China is the largest with any country. It increased 1.9 percent in September and analysts say it is on track to set another annual record. Scott Paul, president of the Alliance for American Manufacturing, said the trade data underscores the need for Washington to threaten sanctions against China for manipulating its currency to gain an unfair trade advantage.

“I’m very pleased that Treasury Secretary (Jack) Lew has noted the trade imbalance with China and other nations during his trip to Asia this week,” Paul said in a news release. “But actions matter even more. Not naming China as a currency manipulator was inexcusable.”

The Obama administration submitted its latest currency report on Oct. 30 to Congress. The report said China’s currency, the renminbi, was significantly undervalued, but it declined to label China a currency manipulator.

U.S. manufacturers have long complained that China is keeping its currency undervalued to make Chinese goods cheaper for American markets and U.S. products more expensive in China.

The Commerce Department’s trade data show that imports rose 1.2 percent to $230.7 billion, the highest level since November last year. Imports of automobiles and parts reached $27.13 billion in September, an increase of $887 million from August.

The U.S. imported $57.34 billion in industrial supplies and materials in September, an increase of more than $900 million from August. Imports of consumer good reached $44.2 billion in September, an increase of $624 million from August.

The nation exported $41.4 billion in industrial supplies and materials in September, $1.26 billion less than August. Exports of nonmonetary gold, fuel oil, and chemicals-fertilizers recorded the largest monthly decline in this category.

Organic chemicals, crude oil, and steelmaking materials topped the list of industrial supplies exports that recorded gains from August to September.

Exports of industrial engines, semiconductors, and telecommunications equipment also increased in September, the data show.

Manufacturing Strong Despite Declines in Overall Industrial Production Factory output grew last month, though the nation’s industrial production as a whole unexpectedly tumbled as power plants and mining operations declined.

Manufacturing production increased 0.3 percent in October despite the first slippage in automobile assembly since July. The increase, on the heels of a 0.1 percent rise in September, was driven by gains in the production of primary metals, furniture, and computer and electronics products, according to data released Friday by the Federal Reserve.

October marked the third consecutive month of gains in manufacturing, suggesting the economy continues to grow at a moderate pace.

Industrial production declined 0.1 percent last month, as utility company output fell 1.1 percent and mining operations suffered a 1.6 percent decline. Utilities had surged 4.5 percent in September.

The contraction in mining was the first setback in seven months. “Temporary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of Tropical Storm Karen contributed to this decline,” the Fed reported.

Economists polled by the Reuters news service had anticipated a 0.2-percent gain in industrial production.

Industrial capacity utilization, which measures how fully companies use their resources, fell 0.2 percent in October to 78.1 percent. The figure is 2.1 percentage points below its long-run average.

The Fed tends to view utilization measures as a barometer of how much the economy can grow before it becomes inflationary.

New York Manufacturing Shrinks in November

Manufacturing in New York contracted this month as orders and shipments deteriorated, according to the Federal Reserve Bank of New York's Empire State Manufacturing Survey.

The Empire State's business conditions index fell to -2.21 in November from 1.52 in October. This is the first negative reading since May. Figures above zero indicate expansion.

Economists had expected the index to rise to 5.0. The new reading is the lowest since January.

The new orders fell to -5.53 from 7.75 in October. The shipments index dropped to -0.53 from 13.12. Manufacturing employment also fell to 0.0 from 3.61 in October. The workweek index fell to -5.26 from 3.61.

Prices declined for goods manufactured in New York. The prices paid index decreased to 17.11 from 21.69, but the prices received index continued to fall to -3.95 after plunging to 2.41 in October from 8.60 in September. It was the first negative prices received reading in two years, the report said.

Manufacturers in the region are also growing more pessimistic. The general business conditions expectations index for the next six months fell to 37.51 this month after rising for four straight months to 40.76 in October. Employee expectations, however, jumped to 22.37 from 7.23.

Speaking on Bloomberg TV’s “The Real Deal”, Bloomberg’s Economics Editor Mike McKee said the good news was that the Empire State Manufacturing Index rarely matches up with national figures.

Jobless Claims Fall Less than Forecast

The number of Americans applying for unemployment benefits fell by 2,000. The number is less than many economist predictions and, with unemployment still high, means the economy remains tepid.

The Labor Department said 339,000 initial claims were filed last week. Economists had expected the number to drop to 330,000 in the week ending Saturday from 336,000 the week before. Unfortunately, the government also revised up the figure for the week ending Nov. 2 up to 341,000.

Employers added 204,000 new jobs to the payrolls last month, but a 16-day government shutdown temporarily pushed the jobless rate up by a tenth of a percentage point to 7.3 percent. That means, despite the fact that total unemployment benefit rolls have fallen 22 percent in the past year, too many have used up all their benefits without finding work.

Manufacturers added 19,000 jobs last month -- the highest all year. But fiscal uncertainty government squabbling continues to stifle business. Thursday, Lockheed Martin announced it would cut 4,000 jobs and close four facilities “in response to continued declines in U.S. government spending.”

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