Deller's two cents: Despite all the political fighting going on, the economy is sounding more positive economic signals than bad ones. The question is if the recovery will be sufficient to off-set the need for massive government budget cuts.
Economic Week in Review: Exports rise to two-year high
December 10, 2010
While Washington buzzed contentiously over tax rates and other domestic policy items, this week's activity suggested the economy is still trying to sound a positive note. Consumer sentiment improved and new jobless claims dropped, but unusual short-term volatility in the fixed income markets depressed bond prices and bumped mortgage rates to their highest level since June. For the week ended December 10, the S&P 500 Index rose 1.3% to a 2-year high of 1240 (for a year-to-date total return of about 13.4%). The yield on the 10-year U.S. Treasury note jumped 26 basis points to 3.29% (for a year-to-date decline of 56 basis points).
Trade deficit narrows
The trade deficit narrowed to $38.7 billion in October as U.S. exports jumped to their highest level in two years. The Commerce Department reported that the deficit with China, an important figure for U.S. trading activity, shrank 8.3%, to $25.5 billion. Exports to China surged almost 30%, to a record high of $9.3 billion.
The report indicated that the inflation-adjusted deficit, used by economists to determine the impact of trade on GDP, dropped to $45.2 billion from $50.3 billion in September. Experts suggested the surge in exports could alter forecasts of fourth-quarter GDP, though the deficit with other trading partners-from Canada to Japan and the European Union-continued its upward trend.
Consumer credit rises again
Consumer borrowing jumped $3.4 billion in October, the largest increase since July 2008-even as revolving credit-card use declined for the 26th consecutive month. The Federal Reserve reported that student loans contributed to the total increase, though the $2.4 trillion overall credit balance was down 3.1% from a year ago.
Experts contend that consumers still prefer to pay cash for goods and services, though new auto sales increased in September and October. The consumer credit report doesn't contain figures on home mortgages or other real estate-secured loans but is still considered a barometer of consumer activity.
The economic week ahead
Next week will be busy with reports, starting Tuesday with the Producer Price Index, retail sales, business inventories, and Federal Open Market Committee monetary policy. Wednesday brings the Consumer Price Index and industrial production news, followed Thursday by data on jobless claims and new residential construction. The Conference Board's report on leading economic indicators caps the week on Friday.
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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
