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Peter Schiff - Trade Rains on the Jobs Parade

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March 21, 2012 – Comments (0)

Earlier this month the Labor Department reported that 227,000 new jobs were added to the economy in February, marking the third consecutive month of positive jobs growth. Many observers took the news as evidence that the recovery has taken hold in earnest, helping send the S&P 500 index to the highest level in nearly five years. However the very same day the Commerce Department reported that, after surging for much of the last year, the U.S. trade deficit increased to $52.6 billion for January, the largest monthly trade gap since October 2008. This second data set should dampen enthusiasm for the first.

Before the financial crisis banished the data to the back pages, America's growing trade imbalances used to be a hot topic. From 2005 through mid-2008 those monthly figures almost always topped $50 or $60 billion, setting a monthly record of $67.3 billion in August 2006. But when the housing and credit markets imploded, attention was focused elsewhere. In any event, the faltering economy took a huge bite out of imports, pushing the trade deficit down 45% in 2009. Even those people who were still paying attention to trade assumed that the problem was solving itself.

However, after reaching a monthly low of $35.7 billion in May of 2009, the trade deficit began to grow again, expanding 31% in 2010 and 12% in 2011.  While the $52.6 billion deficit in January is still about 10% below the monthly average seen in 2006-2008, if GDP continues to nominally expand, as many assume it will, we may soon find ourselves in the exact same place in terms of trade that we were in before the financial crisis began. That's not a good place to be. 

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