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Kathleen Madigan
March 11, 2011, 12:03 a.m. EST
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"¹ Previous Column
Small-business hiring to offset government layoffs
First Take "º
The retreat of the bulls
By Kathleen Madigan of Dow Jones Newswires
NEW YORK (MarketWatch) "” A wider trade gap, usually seen as a drag on economic output, is actually a sign of the recovery's strength.
The U.S. trade deficit widened by an exceptionally large $6 billion in January. The gap of $46.3 billion was the highest since June 2010. Read our complete story on the trade deficit.
Some of the increase reflected higher oil imports "” a trend sure to continue in February and March since the price of crude has surged in response to the Mideast crisis.
Even after adjusting for prices, the January real trade gap is more than $4 billion higher than its average for the fourth quarter. A wider trade gap subtracts from gross domestic product growth. So, unless the gap reverses course sharply in February and March, trade is likely subtracting from U.S. GDP growth this quarter.
WSJ's David Wessel outlines three distinct threats to the U.S. economy.
The drag, however, was expected since trade contributed a large 3.35 percentage points to growth in the fourth quarter.
More importantly, the widening is a plus for the overall tone of the U.S. recovery. That's because the gain in imports is fueled by stronger domestic spending and the need to rebuild inventories "” both pluses for GDP.
Consumers have been lifting their spending, as reflected in weekly retail reports and the jump in vehicle sales in February.
Businesses, meanwhile, are once again adding to inventories. Factory stockpiles increased 1.3% in January, while wholesale inventories jumped 1.1% in the same month. The higher pace of inventories will offset some of the drag on first-quarter GDP coming from trade.
Looking past the single-month deficit, it is worth noting that the U.S. trade deficit is about 28% below its highest point before the recession. And most of the improvement reflects the gain in exports.
Exports, on both a nominal and price-adjusted basis, hit a record high in January. Price-adjusted imports "” the figure that counts for GDP calculations "” are still slightly below the peak hit in early 2007.
The quick recovery of emerging nations along with some weakening of the dollar have contributed to the rebound in exports since mid-2009.
The U.S. factory sector is benefiting from the growing demand from abroad. According to the Institute for Supply Management, U.S. manufacturers booked even more export orders in February, marking the 20th consecutive month of growth in the ISM's export orders index.
As those orders translate into shipments, expect U.S. exports to keep gaining ground this year. Those gains should support jobs all along the export route, from the factory floor through the distribution chain to shipping ports.
Kathleen Madigan is a special writer for Dow Jones Newswires.
It would be surprising from a contrarian point of view if a major market decline were beginning, since we're not seeing the kind of stubbornly held bullishness that has been the hallmark of major market tops, writes Mark Hulbert.
3:15 p.m. March 10, 2011
"Japan's quake death toll climbs to 32: reports http://on.mktw.net/esuMP2" 6:06 a.m. EST, March 11, 2011 from MarketWatch
"Tsunami warnings extend to large parts of the West Coast of the U.S. from Alaska to Calif. http://on.mktw.net/gOWmFx" 5:04 a.m. EST, March 11, 2011 from MarketWatch
"Hawaii begins to evacuate coastal areas in expectation of severe tsunami: reports say http://on.mktw.net/ehDw46" 3:50 a.m. EST, March 11, 2011 from MarketWatch
"Reinsurance stocks decline in Europe following news of Japan earthquake, tsunami http://on.mktw.net/gmwg6O" 3:18 a.m. EST, March 11, 2011 from MarketWatch
"U.S. Geological Survey data indicate magnitude 8.9 earthquake in Japan is worst on record http://on.mktw.net/dH81gJ" 2:34 a.m. EST, March 11, 2011 from MarketWatch
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