Current Account Gap Widens, Retail Sales Fall on Colder Weather, Inventories Rise

- The Current Account Deficit for 4Q widened to -$224.9 billion versus estimates of -$218.0 billion and -$185.4 billion in 3Q.
- Advance Retail Sales for February fell 1.3% versus estimates of a .8% decline and an upwardly revised 2.9% increase in January.
- Retail Sales Less Autos for February fell .4% versus estimates of a .5% fall and an upwardly revised 2.6% increase in January.
- Business Inventories for January rose .4% versus estimates of a .3% increase and a .8% gain in December.

BOTTOM LINE: The US current account deficit widened more than forecast to $224.9 billion, driven by the US economy’s relative strength versus other industrialized nations, Bloomberg reported. The trade deficit, which accounts for 88% of the total current account deficit, rose last quarter on soaring imported oil costs and Americans’ appetite for goods made in Asian countries. I expect the current account deficit to only improve modestly over the intermediate-term as commodity price declines more than offset the continuing relative strength of the US economy.

Retail sales in the US fell last month after the biggest gain in more than four years as auto purchases declined and the return of cold weather discouraged shoppers, Bloomberg said. A healthy job market, falling energy prices and low borrowing costs over the intermediate-term should more than offset a housing market that is slowing to more sustainable levels.

Sales at US businesses rose 1.3% in January, more than three times the increase in inventories, suggesting gains in production in coming months, Bloomberg said. Inventory rebuilding added 1.62 percentage points to economic growth last quarter, the most since 1Q 2002. I continue to expect inventory rebuilding to add to economic growth over the intermediate-term as corporate spending accelerates and businesses gain confidence in the durability of the current expansion.