Trade Deficit Improves, Measure of Inflation Falls Again, Labor Market Healthy

- The Trade Deficit for November shrank to -$64.2 billion versus estimates of -$66.1 billion and -$68.1 billion in October.
- The Import Price Index for December fell .2% versus estimates of a .2% increase and a 1.8% decline in November.
- Initial Jobless Claims for last week rose to 309K versus estimates of 315K and 292K the prior week.
- Continuing Claims rose to 2702K versus estimates of 2681K and 2690K prior.

BOTTOM LINE: The US trade deficit narrowed in November, as the cost of imported oil dropped and exports rose to an all-time high on increased shipments of goods including Boeing(BA) jets, Bloomberg reported. The deficit with China fell for the first time in 8 months, declining 9.9%. I expect the trade deficit to remain relatively high, only improving modestly, as US growth continues to outpace that of other developed nations and commodity prices fall.

Prices of goods imported into the US unexpectedly fell for a second month in December, the first back-to-back decrease since 2004 and a sign of tame inflation, Bloomberg said. The drop in import prices was led by cheaper petroleum, computers and steel. I continue to believe measures of inflation will decelerate throughout most the year, helping to keep long-term interest rates low by historic standards.

The number of Americans filing first-time claims for jobless benefits rose less than forecast last week, suggesting strength in the labor market, Bloomberg said. Companies have now added over 4 million employees to payrolls over the last two years. The four-week moving average dropped to 311,500 from 317,000. The unemployment rate for those eligible for benefits, which tracks the US unemployment rate, held steady at 2.1%. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases, which account for two-thirds of inflation.