America’s yawning trade deficit clearly is unsustainable, at dollar amounts that are the biggest ever. The gaping shortfall means the dollar is dependent on huge inflows of foreign capital. Economist Sung Won Sohn expects Wednesday’s report on the trade deficit for July to show a modest jump, to $31 billion, from $30.6 billion a month earlier. “We are expecting both exports and imports to weaken, after an unexpected jump in June,” said Sohn, of Wells Fargo & Co. in Minneapolis. He said the dollar’s strength, especially versus the euro, is hampering U.S. exports, especially for big-ticket items. Sohn said the embattled European currency is in a perilous position because, “confidence in the actions of the European central bank cannot be restored overnight.”
HOUSING STARTS
WATCH FOR COOLDOWN
A belief is growing that the economy is slowing, but any loss of momentum could mean trouble for those who depend on the nation’s housing industry. If construction were to shift into slow gear, it would affect millions of people who build homes, as well as those seeking to buy the residence of their dreams. Watch for Tuesday’s report on August housing starts to show a construction cooldown is, indeed, taking place. Chicago economist Brian Wesbury is looking for the number of starts to slow to an annual rate of 1.47 million units, from 1.51 million in July. “The housing industry has been slowing for about four months, and this report could be the first since August 1997 with a rate below 1.5 million,” said Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm. He said the job market “is past its peak, so incomes have slowed. The edge is being taken off of the housing industry.” The message for the Federal Reserve, according to Wesbury, is “don’t raise interest rates further. It has been 14 months since the Fed began raising rates, and we are seeing the effect.”
BEIGE BOOK
PRODUCTIVITY MAY BE FOCUS
Amid growing evidence the economy is losing momentum, a few voices are being raised that the Federal Reserve should give thought to reducing short-term interest rates. But with oil at a 10-year high, there are scant expectations of such action occurring soon. The Fed will offer a region-by-region assessment of economic conditions Wednesday with release of its beige book. If the emphasis in the report is on rising worker productivity, instead of higher prices, the prospect of an eventual reduction in rates may not be all that far-fetched, after all.
EQUITIES
FALL ANXIETIES CREEP IN
The stock market usually spends September and October in a state of anxiety, as equity prices stand still or drop. This year seems to be no exception, as Wall Street has done the dog-paddle since Labor Day. The flavor of the week for worriers seems to be the strong dollar, which has begun to erode profits for multinationals. But there are other concerns: rising fuel costs, intense pricing pressures, the slowing economy and tight labor markets. Together, they create a deadly brew for corporate profits. Two giants, McDonald’s and Maytag, added to the downbeat mood last week, warning that earnings are threatened. They blamed, among other factors, the weak euro, intense price competition and so-so buying activity by consumers.
