Thursday, May 12, 2005

Trade Deficit Shrinks

Exports boom, drop in imports boost economy: "A record surge in exports and an unexpected falloff in imports in March enabled the economy to grow faster than previously thought last winter -- at a 4 percent rate or higher instead of 3 percent.
That is the conclusion of economists after the Commerce Department yesterday reported an unexpected 9.2 percent drop in the monthly trade deficit to $55 billion, the lowest in a half year. The surge in exports was fueled by aircraft sales, while the decline in imports was fed by a tailing off of Chinese textile imports.

...Although some economists might interpret March's downshift in demand for imports as evidence the economy is softening, Mr. Gonzalez said it largely reflects the winding down of a surge of imported clothing from China that started at the beginning of the year when quotas were lifted.

Imports from China fell 4.4 percent, led by a 21.2 percent drop in clothing and textiles.

Under pressure from textile and furniture manufacturers losing market share to China, the U.S. Congress and Bush administration have stepped up pressure on China to stop fixing its currency against the dollar and let it rise in the open market.

"The U.S. dollar is still 7 percent higher against foreign currencies than it was when it started its run-up eight years ago," said Mr. Vargo.[VP of National Association of Manufacturers] "The dollar has adjusted nicely against European, Canadian and some other market currencies, but has been prevented from adjusting against Asian currencies because governments there continue to intervene

Recall my forecast in The Anderson Papers on 01-02-05 where I predicted a US GDP growth rate for 2005 of 4.25%. I remain confident in that prediction here in the middle of month five. I think various events are containing the Fed's fears (and mine) over inflationary pressure and hence the FOMC will allow the US economy to grow at the rate I forecast and that I hope comes to fruition.

No comments: