Economic Week in Review: U.S. unhampered by slowdown in global trade - quoted from VANGUARD

AUGUST 10, 2012

Despite reports of weakness in global demand, the surprise increase in U.S. exports in June raised hopes for stronger-than-expected U.S. growth in the second quarter.

For the week ended August 10, the S&P 500 Index increased 1.1% to 1,405.87 (for a year-to-date total return—including price change plus dividends—of 13.3%). The yield on the 10-year U.S. Treasury note rose 5 basis points to 1.65% (for a year-to-date decline of 24 basis points).

U.S. trade deficit narrows

The U.S. trade gap shrank for the third consecutive month in June to $42.9 billion from $48.0 billion a month earlier. U.S. exports rose 0.9%, while imports fell by 1.5%. The better-than- expected results were primarily driven by an increase in nonpetroleum goods exports, including industrial supplies, autos, and consumer goods. Lower petroleum prices contributed to about a third of the trade gap. The narrowing of the trade deficit is expected to improve initial estimates for second-quarter U.S. gross domestic product growth. The June figures showed a U.S. trade surplus with countries including Australia and Singapore. Deficits remained with China and the European Union among others.

Consumer credit gains weaker than expected

Consumer credit grew $6.5 billion in June, as fewer people took on credit card debt; its rate of growth was the slowest seen since October. Analysts had expected an $11.0 billion increase in consumer credit. Some of the weakness may be attributed to declines in personal consumption and spending in late spring and early summer. Fewer people also took on revolving credit such as credit card debt. The reason for the decline in revolving credit is unclear; a combination of factors may be at work, including stricter standards for obtaining credit cards, lower gas prices limiting the need for credit card use, or simply, people becoming less willing to take on debt. Nonrevolving credit, however, did continue to increase, including student loans and auto loans.

Productivity rebounds in second quarter

Nonfarm productivity, which measures worker output per hour, rose at an annual rate of 1.6% in the second quarter following a 0.5% decline in the first quarter. The increase in productivity reflected a 2.0% gain in output and a 0.4% rise in hours worked. In manufacturing, the rate of productivity growth declined sharply, to 0.2% from 5.5% in the first quarter, in part because of a decline in nondurable manufacturing output. Compensation did not match the productivity gains. Unit labor costs increased 1.7% compared with the more robust 5.6% gain in the previous quarter.