Economists React
January 12, 2005 2:34 p.m.
The Commerce Department reported that the U.S. trade deficit widened to a record $60.3 billion in November, as increased demand for foreign oil offset sliding crude prices and exports of U.S. good and overseas declined for the first time in five months. Here's what a selection of economists had to say about the report:
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This caught a lot of us by surprise. We had been anticipating a pull back in the November deficit because of a decline in the price of oil.
-- Jason Schenker, Wachovia
While we caution against reading much into monthly data, this large drop could indicate that foreign economic growth, which the FOMC described as "sub-par," may be slowing more abruptly than previously thought. … While lower oil prices should lead to some retreat in the trade deficit, the drop in exports is worrisome.
-- David H. Resler, Nomura Securities International
[I like this guy! I found this quote just so amusing:]
We now have the Grand Canyon of trade deficits and there is no saying it will not widen further. … Actually, deficit is really a misnomer. Chasm, canyon, gorge, black hole, infinitely deep well all fit the description better. … On the export side, we sold less of just about everything but artwork and nuclear fuel.
-- Joel L. Naroff, Naroff Economic Advisors
International trade volumes (and values) have been growing because of solid world economic growth and increasing globalization. However, despite a decline in the trade-weighted dollar of around 15% over the past 2 years, exports are still growing more slowly than imports.
-- Steven Wood, Insight Economics
This will bring back the structural argument for a weak dollar, which has been in hiding over the past few weeks as the dollar has rallied. It will also shift media focus surrounding the G7 towards how the G7 will resolve this imbalance.
-- Greg Anderson, ABN Amro
A good deal of the recent deterioration in these trade figures is probably related to j-curve effects, as dollar weakness has raised the value of imports ahead of any decline in volumes related to more competitive terms of trade.
-- Joshua Shapiro, Maria Fiorini Ramirez Inc.
From a GDP accounting perspective, this represents a much larger subtraction from fourth-quarter GDP growth than we were anticipating, although this may be partially offset by a more rapid inventory build in the fourth quarter. … From an economic perspective, the rapid widening of the trade gap is a sign that monetary policy remains far too accommodative … The FOMC might worry about the widening trade gap and its potential impact on the dollar and thus on inflation.
-- John Ryding, Conrad DeQuadros, and Elena Volovelsky, of Bear Stearns
Right now we have a voracious appetite and the rest of the world keeps setting the table -- and paying the bill -- for us. Even though a declining dollar makes U.S. goods more competitive, it hasn't yet reached a point where it would dramatically stimulate global demand for them. At the same time, U.S. consumers have a huge demand for imported goods and the means to pay for them.
-- Oscar Gonzalez, John Hancock Financial Services
The reality is that a falling dollar, by itself, only exacerbates the trade deficit, by increasing the cost of imports. In addition, as domestic savings continues to decline, America becomes less able to finance the capital investments necessary to increase the production of consumer goods, thereby diminishing its ability to export. Today's data evidences this perfectly, as imports rose 1.3% while exports fell 2.3%
-- Peter D. Schiff, Euro Pacific Capital |
