Sunday, January 6, 2008

Trade Deficit Probably Widened on Oil: U.S. Economy Preview

By Shobhana Chandra

Jan. 6 (Bloomberg) -- The U.S. trade deficit probably widened in November as Americans spent a record amount on imported oil, economists said a report this week may show.

The gap between imports and exports expanded to $59.5 billion, a five-month high, according to the median estimate of economists surveyed by Bloomberg News ahead of the Commerce Department's Jan. 11 report. Earlier in the week, a private report may show a decline in contracts to buy existing homes.

The trade report is also likely to show exports continued to increase, preventing a steeper decline in manufacturing. Sales to customers overseas are even more important now that rising fuel prices, a deepening housing slump and rising unemployment threaten to stall economic growth.

``Trade continues to be one of the only bright spots in the economy,'' said Ellen Zentner, an economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. ``It has been balancing out a lot of the drag from housing.''

The trade deficit grew from $57.8 billion in October, widening for the third consecutive month, the report may show.

A weaker dollar, which makes American-made goods less expensive for overseas buyers, is helping to lift exports. The dollar was down 7 percent against a trade-weighted basket of currencies from the U.S.' biggest trading partners in the 12 months ended in November, based on Federal Reserve data.

Exports set a record every month from March to October and are likely keep rising as growth in China and Latin America fuels demand for goods such as aircraft and industrial engines.

Aircraft Shipments

Boeing Co., the world's second-largest maker of commercial planes, is one company benefiting from increasing overseas demand. Chicago-based Boeing won 1,413 commercial jet orders last year, setting a third straight annual record driven by demand from Asian and Middle Eastern airlines.

The National Association of Realtors' index of pending home sales, due Jan. 8, dropped 0.6 percent in November after two months of gains, according to the Bloomberg survey median. The gauge is considered a leading indicator because it tracks contract signings.

Declining home values are prompting potential buyers to wait for even bigger decreases, signaling sales are unlikely to improve until mid-2008 at the earliest, economists said. Falling property values also make owners feel less wealthy and reduce home equity, representing another headwind for consumer spending.

Concern about the outlook for spending grew last week after the Labor Department reported hiring slowed more than forecast in December and unemployment jumped to a two-year high.

Softer Job Market

Payrolls rose by 18,000, capping the worst year for job creation since 2003. The jobless rate increased to 5 percent from 4.7 percent in November.

Housing-related companies are at the epicenter of the downturn. Bed Bath & Beyond Inc., the largest U.S. home- furnishings retailer, said last week that quarterly earnings dropped for the first time in at least 15 years and forecast profit that trailed analysts' estimates.

``The business environment remains challenging, particularly in areas affected by housing-market issues,'' said Ronald Curwin, the company's senior vice president of investor relations.

Rising energy prices are another concern. Crude oil prices on the New York Mercantile Exchange surged to a record $100.09 on Jan. 3, suggesting petroleum imports will continue to keep the trade imbalance elevated, economists said.

A brief respite in oil's inexorable climb probably helped keep the cost of imported goods little changed in December, economists said before the Labor Department's report on Jan. 11. Oil costs drove the import-price gauge up 2.7 percent in November, the most in 17 years.

Increasing fuel prices may not lead to a broader gain in inflation as the U.S. economy cools, economists said.

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
Pending Homes MOM% 1/8 Nov. 0.6% -0.6%
Cons. Credit $ Blns 1/8 Nov. 4.7 8.0
Initial Claims ,000's 1/10 Jan. 6 336 340
Cont. Claims ,000's 1/10 Dec. 30 2761 2740
Whlsale Inv. MOM% 1/10 Nov. 0.0% 0.4%
Trade Balance $ Blns 1/11 Nov. -57.8 -59.5
Import Prices MOM% 1/11 Dec. 2.7% 0.0%
Federal Budget $ Blns 1/11 Dec. 42.0 50.0

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