Trade Deficit Shrinks Again, Core PPI Flat, Confidence Declines

- The Trade Deficit for February shrank to -$58.4 billion versus estimates of -$60.0 billion and -$58.9 billion in January.
- The Producer Price Index for March rose 1.0% versus estimates of a .7% gain and a 1.3% rise in February.
- The PPI Ex Food & Energy for March was unch. versus estimates of a .2% rise and a .4% gain in February.
- The preliminary Univ. of Mich. Consumer Confidence reading for April fell to 85.3 versus estimates of 87.5 and a reading of 88.4 in March.

BOTTOM LINE: The US trade deficit unexpectedly narrowed in February from the previous month, as the US purchased fewer goods from China and imported less petroleum, Bloomberg reported. Imports from China fell to the lowest since May 2006. Exports of consumer goods during January and February were the best on record for any two-month period. Oil imports fell to $20.7 billion, the lowest since June 2005 as both volume and prices fell. The trade deficit with China fell to $18.4 billion in February versus $21.3 billion the prior month. I expect the trade deficit to only improve modestly over the intermediate-term as falling commodity prices more than offset improving US growth relative to other developed nations.

Prices paid to US producers rose more than forecast in March, however core prices were unexpectedly flat, Bloomberg reported. The core reading shows that companies are mainly absorbing higher energy prices rather than passing them along to customers. Producer Prices rose 3.2% year-over-year in March, around long-term average levels. The Core PPI has shown deceleration the past 4 months despite the recent bounce higher in commodity prices, which is a positive. I expect the PPI to decelerate from current levels as commodity prices fall.

Overall consumer confidence declined in April as energy prices rose, Bloomberg reported. The expectations component fell to 74.3 from 78.7 the prior month. However, the current conditions component of the index is still a healthy 102.4 versus 103.5 the prior month. Regular gas prices at the pump rose to $2.79/gallon on April 10, the highest since last August. While consumer confidence remains muted, mainly due to the rise in gas prices and media's obsession with housing, recent strong retail sales reports show they continue to spend. I still expect consumer confidence to head back to cycle highs over the intermediate-term as energy prices fall, the job market remains healthy, stocks rise further, housing sales stabilize at relatively high levels, interest rates remain low and inflation decelerates.