Vital Signs: World Trade Keeps ShrinkingJames Cooper
As world leaders talk back and forth over how best to address the global economic and financial meltdown, the volume of world trade continues to collapse. The Group of 20 nations appear to agree on key regulatory issues, such as tighter reins on risk-taking by banks and hedge fund operations, stricter limits on executive pay, and closer supervision of credit rating agencies. But while the policymakers stand ready to offer $1 trillion to bolster the International Monetary Fund’s resources to help nations deal with the economic fallout, there remains little agreement over how to boost demand in their own economies.
The sharp shrinkage in global trade, projected by the World Trade Organization to plunge 9% this year, will be in full view this week, when Washington issues its report on the U.S. trade balance on Thursday. Economists expect further declines in both exports and imports to widen the monthly deficit to $37.3 billion, from $36 billion in January. Since August of last year, exports of goods, adjusted for inflation, have plummeted 24%, with imports down 14%. The trade gap is on a path to subtract slightly from first-quarter growth in real GDP, and the deficit is unlikely any time soon to post any meaningful narrowing that would help to lift economic growth.
The problem is on the export side of the trade ledger. Economies abroad are suffering as badly or worse than the U.S., and the trade-weighted dollar has appreciated about 18% over the past six months, making U.S. goods less attractively priced in overseas markets. Through March, the Institute for Supply Management’s index of export orders remained at at very low level, implying a continued drop in orders from abroad. The export falloff has hit U.S. manufacturers hard, but the pain is widespread, reflecting the global plunge in demand. The global economics team at J.P.Morgan estimates that global industrial production, which fell at a 22% annual rate in the fourth quarter, dropped 25% to 30% in the first quarter.
Hope for improving global trade rests mainly with consumer spending, and there are tentative signs that consumer outlays may be stabilizing in both the U.S. and abroad after several months of steep declines. Weak labor markets in the U.S., Europe, and Japan caution against too much optimism, but if consumer spending only stops falling, against the current rate of decline in industrial output, then businesses will be able to eliminate their excess inventories in coming months. That would lay the groundwork for a broader stabilization in world growth later this year.
In addition, any global turnaround also will depend on the success of U.S. policy efforts to revive U.S. demand. Contrary to the previously popular notion that the U.S. had become decoupled from the global economy, the current U.S.-led downturn shows that the U.S. remains the locomotive of world growth. The G-20 leaders' reluctance to endorse broad global stimulus programs will most likely make that point clear, as U.S. policy measures begin to kick in, helping to lift other nation’s exports.
The markets will be closed Apr. 10 for Good Friday. Here’s the weekly economic calendar, from Action Economics:
|Reports||Date||Time||For||Median Estimate||Last Period|
|Consumer Credit ($Billions)||Tuesday, Apr. 7||3:00 p.m.||February||-$1.0||$1.8|
|Wholesale Trade Sales||Wednesday, Apr. 8||10:00 a.m.||February||0.2%||-2.9%|
|Trade Balance ($Billions)||Thursday, Apr. 9||8:30 a.m.||February||-$37.3||-$36.0|
|Goods & Services Exports ($Billions)||Thursday, Apr. 9||8:30 a.m.||February||$124.0||$124.9|
|Goods & Services Imports ($Billions)||Thursday, Apr. 9||8:30 a.m.||February||$160.8||$160.9|
|Export Price Index||Thursday, Apr. 9||8:30 a.m.||March||0.0%||-0.1%|
|Import Price Index||Thursday, Apr. 9||8:30 a.m.||March||1.0%||-0.2%|
|Treasury Budget ($Billions)||Friday, Apr. 10||2:00 p.m.||March||-$166.0||-$192.8|
|ICSC-UBS Store Sales||Tuesday, Apr. 7||7:45 a.m.||Mar. 29-Apr. 4|
|Johnson Redbook Weekly Store Sales||Tuesday, Apr. 7||8:55 a.m.||Mar. 29-Apr. 4|
|Job Openings and Labor Turnover||Tuesday, Apr. 7||10:00 a.m.||February|
|EARNINGS: Alcoa (AA)||Tuesday, Apr. 7|
|EARNINGS: Bed Bath & Beyond (BBBY)||Tuesday, Apr. 7|
|Mortgage Applications||Wednesday, Apr. 8||7:00 a.m.||Mar. 29-Apr. 4|
|Federal Reserve FOMC minutes||Wednesday, Apr. 8||2:00 p.m.||Mar. 17-18|
|EARNINGS: Constellation Brands (STZ)||Wednesday, Apr. 8|
|EARNINGS: Family Dollar Stores (FDO)||Wednesday, Apr. 8|
|Initial Unemployment Claims||Thursday, Apr. 9||8:30 a.m.||Mar. 29-Apr. 4|
|SPEECH: Minneapolis Fed President Stern||Thursday, Apr. 9||12:15 p.m.|