Econ Data 101: Jobless Claims, Trade Deficit

Today's data included the weekley jobless claims and measurements of December 2007's trade deficit.

Jobless Claims: -9k, +12k (4-wk. moving avg.) -- neutral
Trade Deficit: exports +1.5%, imports -1.1% -- semi-positive

First, in the jobless claims, we saw a fall in claims of 9k to 347,000 new claims vs. last week's initial report of 356,000. Consensus was for a drop to 350,000, or 6k below last week's measure. This number leaves us at a 4-wk. moving average of 347,250, or 12k above what it was last week. Let's break this down a bit more. First of all, this data is measuring the number of US workers filing new claims for unemployment benefits for the previous week (the week ending Feb. 9 in this case). Unemployment claims gives us a sense of the state of the overall economy because more employment generates more income, more spending, more profits, etc. Too low a number may be a concern because low unemployment can cause firms to bid up wages, but too high a number suggets the economy is stagnant. A 347,250 4-wk. average is a bit on the high end of the comfort zone, but its not the recession number a lot of people were (are) expecting. Also, economists generally use a 4-wk. moving average to gauge where we are at in the business cycle because it smooths out week-to-week volatilities. So the 12k increase in the 4-wk. moving average (not so good news) counters the 9k drop in the weekly number (good news). Bottom line: not great data, but a relief that it wasn't awful.

The trade balance is the measure of exports minus imports, and for the month of December the US trade deficit contracted by about 7%, from $63b (in Nov.) to $58.7b. This is a sharp fall and it means two things. First, it means that US exports are responding to a weaker US $ and strong foreign demand for our goods and services. Indeed, exports rose 1.5% from Nov. to Dec., which is very good for US exporters. This is exactly the way in which a weak US $ acts as a sort of "safety valve" for the economy... when the US $ weakens in the face of slow growth, exports step up and provide a boost to the economy. The other side of the shriking trade deficit is the fall in imports, which was a -1% change from Nov. to Dec. Given that oil prices (a major US import) were running high during Dec., the fall in imports points to a fall in US aggregate demand. This is the bearish news coming out of the trade balance numbers today. Bottom line: exports boomed on the weaker $, consistent with our forecast from January that exporters would be a big factor in keeping the US out of recession. Imports fell on aggregate demand contractions, but you can't build an economy on aggregate demand (unless, of course, you are a Kenyesian).

Finally, as far as MII and our portfolio is concerned, stock futures moved slightly higher on this news while the yield-curve continued to steepen significantly. A steep yield curve suggests robust growth with inflationary pressures into the future, not consistent with recession. It's possible that we'll get a couple of quarters of negative GDP growth, but I'm still far from convinced. In fact, the trade data should result in an upward revision to the 0.6% Q4 GDP number we saw a couple of weeks ago.