Uncle Sam enjoys a vaunted reputation as a virtual man of steel in international trade, but reality paints a less rosy picture. When it comes to Asian competitors, critics complain they routinely kick sand in the face of America and its companies. The nation’s yawning trade deficit speaks for itself, worsening month by month, approaching record levels. Another test comes Friday, with the shortfall for May. Economist Samuel Kahan looks for the deficit to hit $14.5 billion, the same as in April. “Keep in mind that a mere three months ago, it was only running $8 billion to $9 billion,” said Kahan, of A.S.K. Financial Research. He said the impact of the Asian crisis is appearing in this country “right on schedule. It takes months for people to renegotiate contracts; so we now are seeing the effects of what happened in Asia last summer and last fall.” Kahan said a slowdown in exports to Asia is beginning to crimp this country’s manufacturing sector, but there has been little deterioration in consumer spending or the overall economy.
CONSUMER PRICES
INFLATION LURKING?
Tuesday’s report on the June consumer price index will show a gain of 0.1 percent, with the so-called core rate, which excludes food and energy, up a more worrisome 0.2 percent, says Chicago economist Robert Dederick. “Inflation is creeping in a little bit here, a little bit there,” said Dederick, a consultant to Northern Trust Co. “While prices seem to have bottomed out, don’t look for a meaningful breakout of inflation until well down the road.” He says companies that face little overseas competition, especially in housing and pharmaceuticals, have been able to pass on some price increases to consumers.
BUSINESS INVENTORIES
BACKLOG SLOWING
Look for Wednesday’s report on May business inventories to show an advance of 0.2 percent, the same as in April, according to economist Steven Wood of BancAmerica Robertson Stephens in San Francisco. He says backlogs of unsold goods have slowed since this year’s first quarter, a trend “which already is evident in the manufacturing and wholesale industries.” Wood believes the slowdown in inventory buildup will weigh as a negative influence on second quarter gross domestic product.
STOCK MARKET
BULL’S-EYE ON RECORDS
Because of earnings warnings and shortfalls, many analysts have declared the bull in the stock market may not have much longer to run. But Fred Gordon, who for many years wrote an investment letter in Northbrook, says recent action shows the charging beast still has plenty of life. “There is an old saw on Wall Street that the most bullish thing a market can do is achieve new highs,” he said. “Look at the recent records set by the Nasdaq composite index and the Standard & Poor’s 500-stock index and you see there still is plenty of money chasing stocks.” He says the market is in a phase where it is dominated “by major league players. It is too tricky for some of us amateurs to trade. But it seems very likely the Dow Jones industrials will make a new high.”
