Weak Dollar Fuels Exports

July 15,2008--The U.S. trade deficit narrowed in May as the weak dollar fueled exports and the weak domestic economy limited imports. Problems remain in the housing market, as evidenced by a decrease in pending home sales in May. Consumers remained glum as the University of Michigan Consumer Sentiment Survey remained low in July.

 

International Trade
According to the Bureau of Economic Analysis, the U.S. trade deficit in goods and services narrowed an unexpected 1.2% in May to $59.8 billion, $700 million less than April's $60.5 billion. Both exports and imports increased in May, though, exports increased more than imports. The total bill for oil and petroleum rose to $40.4 billion, even though overall volume decreased as crude prices surged by $9.47 a barrel in May. The weak dollar is driving exports while sluggish growth at home is hindering imports. Overall growth will remain timid or even turn negative during the remainder of the year, thus, the trade balance should continue to narrow.

 

Pending Home Sales
The index for pending home sales decreased 4.7% in May to 84.7 after rising 6.6% in April. The index is 14.0% lower than May 2007 levels. The data suggest that existing home sales should continue to be flat or in outright decline for the next few months, as the housing adjustment continues.

 

University of Michigan Consumer Sentiment Survey
The survey essentially remained unchanged in July, rising a paltry .4% to 56.6, up .2 from 56.4 in June. Some analysts predicted that consumers' spirits would rise on the heels of tax stimulus rebate checks, however, the data fails to suggest that. Consumers are more confident about their positions now relative to their expectations for the future, as present conditions rose slightly to 69.5 in July while expectations slipped to 48.3. Many factors continue to weigh down consumer confidence in the economy, especially high food and fuel costs, declining employment, and the reduced availability of credit.