For years, Americans have whistled past the graveyard when contemplating the trade deficit. A see-no-evil attitude prevails toward fears that the never-ending shortfall will threaten the economy or stock market, as foreigners grow weary of financing U.S. consumption. News in recent days that the broadest measure of the trade gap rose last year to $338.9 billion was greeted with yawns. This brings us to Tuesday’s report on the situation for January. Economist Sung Won Sohn is looking for a monthly deficit of $27 billion, up from $25.5 billion in December. He says Americans’ devil-may-care attitude could hit a wall, because “the current account deficit has grown to 4.1 percent of gross domestic product, while anything above 4 percent is seen as a threat to the dollar and Wall Street. Trade is one of the most pressing issues we face. It is one of the major imbalances facing our country.” But Sohn, of Wells Fargo & Co. in Minneapolis, sees signs that the negative trade bulge will decline, at least slightly, within a year. “If it weren’t for a rise in the price of oil, we would be seeing a bit of improvement already,” he said. “For the next few months, the trade deficit will get worse, but at a slower rate.”
INTEREST RATES
FED BOOST COMING
Hard on the heels of the trade announcement, members of the Federal Open Market Committee on Tuesday will decide what should happen to interest rates. Chicago banker Kenneth Skopec sees a near-certainty that Federal Reserve policymakers will boost their target for short-term rates by a quarter-point, to 6 percent. “There is even a small chance they will push rates up by a half-point, because of their inflation concerns, which include very tight labor markets,” said Skopec, of Mid City Financial Corp. “When you look at workers today, they are all looking for better jobs over the Internet. Professional talent is in very short supply, and corporate loyalty has gone out the window. It is at a point where everyone needs to pay signing bonuses–we even need them to attract bank tellers.”
MANUFACTURING
NOT GETTING ANY SLACK
Adding to the Fed’s concerns is a red-hot manufacturing sector, which is beginning to be squeezed by expanded costs for oil and other raw materials. Don’t look for any signs of slackening in Friday’s report on February orders for durable goods; most economists anticipate a rise of 1 percent or more. Although orders fell a sizable 1.9 percent in January, that only partially reversed an outsized gain of 6.3 percent in December, much of it from high-flying aircraft manufacturers.
WALL STREET
TESTING, TESTING
Buoyed by a comeback in shares of old economy companies, analysts in the stock market are watching to see whether the Dow Jones industrial average can advance another 200 points or so from its Friday close of 10,595.23. If so, traditional blue chips would have regained more than half of their losses since hitting a record 11,722.98 on Jan. 14. But that would create a real test. According to Flossmoor investment adviser Richard Evans, in his Renaissance Report newsletter, “a rally that retraces half to two-thirds of the February decline, followed by a decline to new lows, would classify the market as bearish.”William Sluis
