Friday, November 09, 2007

Trade Deficit Shrinks Again as Exports Soar to Another Record, Import Prices Boosted by Oil, Confidence Low

- The Trade Deficit for September shrank to -$56.5 billion versus estimates of -$58.5 billion and -$56.8 billion in August.

- The Import Price Index for October rose 1.8% versus estimates of a 1.2% gain and a downwardly revised .8% increase in September.

- The Preliminary Univ. of Mich. Consumer Confidence Index for November fell to 75.0 versus estimates of 80.0 and a reading of 80.9 in October.

BOTTOM LINE: The US trade deficit unexpectedly narrowed in September as exports soared to another record, Bloomberg reported. Exports boomed to new record highs for the seventh consecutive month. Exports rose to $140.1 billion as almost all major categories, including foods, raw materials, automobiles and consumer goods registered gains. The trade deficit will likely continue to improve over the intermediate-term.

Prices for goods imported into the US jumped more than forecast in October as oil prices neared a record, Bloomberg reported. Prices excluding petroleum, which still includes nat gas, food and metals, rose .5%. Excluding petroleum, prices rose 3.2% over the last 12 months. The cost of imported capital goods fell .1% versus unch. the prior month. Costs for consumer goods excluding autos rose .1%. I expect import price increases to subside over the coming months and move back to below-average levels over the intermediate-term.

Confidence among US consumers fell more than expected in November, Bloomberg reported. The Expectations component fell to 64.7 versus 70.1 the prior month. The Current Conditions component fell to 91 versus 97.6 the prior month. Consumers expect inflation to rise a below average 2.9% over the next five years. I still expect Consumer Confidence to head back near cycle highs over the intermediate-term as housing fears subside, stocks make new record highs, unemployment remains historically low, wages continue to substantially outpace inflation, gas prices fall, the dollar firms and inflation decelerates further.

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