Economic Outlook

US Trade Deficit Shrinks; First Quarter GDP Estimate Ticks Up to 0.1%

Trade Deficit Shrinks

Inquiring minds are investigating the Commerce Department report on International Trade in Goods and Services for February 2015, for clues about first quarter GDP.

Highlights

 

  • Exports were $186.2 billion, down $3.0 billion from January.
  • Imports were $221.7 billion, down $10.2 billion from January.
  • Year-to-date, the goods and services deficit decreased $ 2.6 billion, or 3.2 percent, from the same period in 2014.
  • Year-to-date exports decreased $5.3 billion or 1.4 percent.
  • Year-to-date imports decreased $7.9 billion or 1.7 percent.

Balance of Trade

37191 a

GDP Analysis

Recall that exports add to GDP and imports subtract from GDP. Thus my first reaction to the report was that

GDP estimates would go up. They did, but very slightly.

 

Atlanta Fed GDPNow Model

Yesterday, following an Unexpected Decline in Construction activity, the Atlanta Fed GDPNowforecast dipped to 0.0%.

Today following the shrinkage in the trade deficit, the forecast is back in positive territory at 0.1%.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 0.1 percent on April 2, up from 0.0 percent on April 1. Following this morning’s international trade release from the U.S. Census Bureau, the nowcast for the change in real net exports in 2009 dollars increased from -40 billion to -33 billion. The nowcast for real equipment investment growth declined from 7.5 percent to 6.1 percent following the international trade report and the Census Bureau’s M3 manufacturing report.

GDPNow Estimate for 1st Quarter

37191 b

 

Another Sign of Slowing Global Economy

The declining trade deficit is a good thing. However, the shrinking trade deficit is not as positive as it may look at first glance.

It would have been far better had the trade deficit shrinkage been on rising exports. Instead, imports and exports are both down. That is yet another sign of the slowing global economy.

Back in January, I forecast declining exports on the strength of the US dollar. Here we are. If oil ticks back up for any reason, so will imports.

There is not a lot to cheer about in today’s reports (Also see Factory Orders Unexpectedly Rise Snapping String of 6 Straight Declines.)

Big Trouble Looming: Rising Inventory to Sales Ratio

Under the recent information deluge, we haven’t had the time to analyze a very interesting and disturbing trend. The U.S. business inventory to sales ratio has been rising for months. What does it mean for the American economy and the gold market?

According to the Monthly Wholesales Report, inventories were up 6.2 percent in January from a year ago and 0.3 percent from December. Coupled with weak sales data (sales fell by 3.1 percent from December 2014 and 1 percent from January 2014), the inventory to sales ratio increased to 1.35 in January from 1.33 in December 2014. It means that it would take 1.35 months for businesses to clear shelves, the highest inventory-to-sales ratio since July 2009.

Why is data on business inventories so important? The answer is that the changes in the inventory to sales ratio indicate any supply or demand imbalances in the economy. Inventories rise when supply is greater than demand. Inventories rising relative to sales mean that sales fail to meet demand projections. Thus, the inventory to sales ratio usually reaches its cyclical peak in the middle of the recession, when the economy is slowing down. Indeed, please note three things.

First, that inventories of durable goods jumped the most – by 7.7 percent from year ago, which is generally in line with weak data on news orders for durable goods. Second, contrary to the historical declining trend (due to improved inventory management), we are witnessing a gradual rise since 2013 and particularly since the summer of 2014. Actually, the inventory to sales ratio has reached the highest level since the Great Recession (see the chart below). Third, inventories are rising despite low prices. Thus, this indicates week global demand.

1

The consequences may be significant. The high levels of inventories could make entrepreneurs very

uncomfortable with adding more stocks. Thus, they will probably try to reduce their orders to get inventories in line. However, those orders are the suppliers’ sales. It means that reducing stocks and cutting orders may trigger a spiraling decline in sales and a recession. After Lehman, businesses reduced orders so aggressively that the supply chain seized, sales went down and inventories soared.

 

To sum up, inventories should not look only at the Fed’s actions and speeches, but also analyze fundamental data. The inventory to sales ratio is of utmost importance, since it shows the supply/demand imbalances. The rising ratio indicates that the U.S. economy is slowing down due to weak demand. The report on U.S. durable goods orders is good news for gold prices, because the possible recession could boost safe-haven demand for gold and change the Fed’s monetary policy stance to even more dovish.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor originally sent to subscribers on March 30, 2015, 7:00 AM.

Faber: Decoupling between Economic activity and Asset Markets

ET Now: Do you think financial markets are very naive in the way they are reacting? The world is fighting for deflation, but despite a global growth scare, most of the major markets are sitting at a record high, be it DAX, the Nikkei or the NASDAQ.

UnknownMarc Faber : Yes. There is decoupling between economic activity and asset markets. If you look at the economies globally, we know that in Europe there is hardly any growth. Can Europe, relative to its poor performance of the last few years, grow this year by 1-1.5%? It is possible, but we understand GDP is not a very relevant measure of economic well-being. In the US, the latest statistics are rather disappointing and in China, we have meaningful slowdown as well as in all resource producers of the world.

John Anderson, my friend who is a very good economist and also has his own consulting firm, calculated that the GDP figures in India are actually overstating economic growth significantly. It does not mean that he is bearish about the Indian financial assets. I am also positive essentially about the Indian assets, but growth is not what the government is publishing.
– in Economic Times of India

….more from Marc Faber:

Marc Faber: Indian Stocks can correct by 20%

 

Larry, From 1,300-Year-Old Tibetan Town, China

LarryEdelsonI’m now in the 1,300-year-old Tibetan Town, in Dukezong in Yunnan province, southwest China. A mix of mostly Tibetan Buddhists and Muslims, the area, with its dramatic scenery inspired the fictional paradise of Shangri-La described in the 1933 novel “Lost Horizon” by British author James Hilton.

To say the surroundings of mountains, streams, sheep, yack, Tibetan Monks and Imams is a sight to behold is an understatement. I have never seen such peaceful surroundings and beauty!

Tibetan Town is also along the old Silk Road. A trading route that will also be modernized by the build out of China’s Silk Road 2.0, the 21st century version of a trading network that will open Western China image1and trade to Europe, to Middle Asia, to Southeast Asia and even all the way to Germany on the Western portion of the route.

In a few weeks, I’ll tell you all about it, including a travelogue I’ll put together. Not to mention how you can get set to profit from the build out of Western China and Silk Road 2.0.

But right now, let me turn your attention to the markets. More specifically, DEFLATION. It’s here, with a vengeance.

The massive losses last week in nearly all commodity markets are beginning to take their toll with devastating blows in everything from precious metals and energy, to foods, soft commodities such as coffee, cocoa and sugar, and more, including slumping meat prices.

What’s causing it all? Some think it’s the soaring dollar. And in part, it is strength in the dollar that is causing import prices to decline. But it’s much more than that. It’s what the strength in the dollar signals, for the dollar itself is rising due to …

image2First, the absolute total mess that Europe is in. I have been warning about this for some time now, and Europe’s meltdown is now in process. The euro currency has plummeted more than 25 percent in the past few months, a shocking collapse.

The euro may bounce in the short-term, but its decline is far from over. The euro, currently trading at roughly 1.0540 to the dollar, will ultimately fall to 0.80 to the dollar, then cease to exist.

Second, European leaders’ insane policies of austerity measures and piling on more debt at the same time. It’s crushing the economies of Greece, Spain, Portugal and more, where debt to GDP ratios are rising, strangling growth, causing unemployment to remain high, and the youth to start to rebel.

Savvy Europeans, anyone with half a brain, is moving money out of Europe and into the dollar.

Third, U.S. leaders aren’t all that much better. Still up against an $18 trillion Federal debt limit, hunting down every penny of wealth Washington can get its hands on domestically and overseas, killing our tech leading spot in the world with its planting of spying devices on hard drives and computers, spying on each and every one of us …

Is all leading to a risk-off, hoarding money type of effect, causing the velocity or turnover of money and credit to slump — outright deflationary.

Bottom line: There will be more deflation ahead. Much more. For Europe, for Japan, and for the U.S.

Keep your eye on gold. It has now tested support at the $1,140 level. A bounce is overdue, but once gold closes below $1,140, DEFLATION will accelerate even more, leading to another round of crushing blows in all commodities.

And don’t let anyone fool you about the price of oil. It too has not yet bottomed. Before deflation comes to a head, oil will be trading near the low $30 level.

If you own the inverse ETFs on gold and silver, recommended Oct. 15 and the bullish ETF on the dollar, recommended Oct. 29, HOLD!

They’ve racked up gains of as much as 10.9 percent (GLL), 10.9 percent (DZZ),13.5 percent (ZSL) and 15.9 percent (UUP), respectively.

Best wishes, as always …

Larry

P.S. I’m so concerned about the massive new threats to your income, savings, investments and retirement that I am ready, willing and able to give you everything you need to help protect and multiply your wealth in 2015 — absolutely FREE.

 

Baltic Dry Index Hits New 29 Year Low

The very recent fall of the Baltic Dry Index (BDI) to the lowest level since 1986 (Figure 1.) confirms our fears about the health of the world economy. Why is the drop in the index a bad sign for the global economy?

1

….read entire article HERE

Marc Faber on Dollar, The US Economy & Global Interest Rates

 

Marc-Faber-ESA ee17d6cd86QE has Grossly inflated Asset Prices

This year could be the year when investors lose confidence in central banks’ ability to engineer a sustained economic recovery, Marc Faber said in a presentation in London.

So far, London and New York property, as well as equities, have “reacted very well” to the Fed’s quantitative easing efforts, “but that doesn’t boost the wealth of the nation and it leads to less social cohesion,” he warned.

“One of the problems of this liquidity injection is that the Fed can force relatively responsible central banks to print money,” Faber added.

QE has “grossly inflated” asset prices and as a result U.S. equities as “highly expensive,” Faber said. A sustainable recovery should be based on investment rather than on consumption, but companies will find it more difficult to boost profits in the current economic climate, he added.