Early signs of Americans spending less, US exports picking up

Early signs of Americans spending less, US exports picking up
October 13th, 2007 · No Comments

Data shows retailers’ sales rising a mere 1.7% and August trade gap declining

ECONOMISTS have been predicting that consumers would slow their spending but that the damage would be cushioned as American businesses sold more products abroad.

This week, there was evidence that both are starting to happen.

The United States trade deficit fell to US$57.6 billion (S$84.3 billion) in August, and major retailers’ sales at stores open at least a year rose a meagre 1.7 per cent last month from a year earlier, two reports said.

Monthly results can be volatile, and economists caution against reading too much into what could turn out to be mere blips. But taken together, they are indicators of an economy in transition.

The weak housing market is making consumers spend their money more carefully. That, in turn, means that retailers import fewer goods from abroad, lowering the trade deficit.

Simultaneously, the slower US economy and lower interest rates mean that the greenback is less valuable compared with other currencies than it was a few months ago.

That makes US goods cheaper and exporters more competitive than they have been in recent years, creating a source of growth that will ease the pain of the housing crunch.

‘Trade is providing a pretty big offset to the drag of housing,’ said Mr Brian Bethune, an economist with consulting firm Global Insight. ‘It’s not totally offsetting housing, but it is a buffer.’

The gap between what the US imported and exported was US$1.4 billion less than in July - a bigger drop than forecast and the lowest monthly trade deficit in five years when adjusted for inflation, according to the Commerce Department.

Other countries bought more American soybeans, chemicals and steel, and the US imported fewer foreign cars.

The export sector could create a bounce for the nation’s gross domestic product, the broadest measure of how the economy is doing, of which net exports is a major component.

Economists from Bank of America and Morgan Stanley increased their projection for how much US output grew in the third quarter to more than a 3 per cent annual rate.

September retail sales growth of 1.7 per cent is probably not enough to keep up with inflation; analysts expect the consumer price index for last month, to be released next week, to show a 2.8 per cent annual increase.

Some analysts say the disappointing gain is an early hint that consumers are making spending decisions more carefully. Mr Bethune said: ‘It takes a lot more cajoling in terms of discounts and incentives to get them to spend.’

Source: WASHINGTON POST (The Straits Times 13 Oct 07)