 | The trade deficit in goods and services expanded to $40.6 billion in December |
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Implications: The trade deficit expanded in December, almost exactly as the consensus expected. Beneath the headlines, both exports and imports continue to recover from the financial panic that reduced cross-border trade flows even more than purely domestic activity. Exports, which have been expanding rapidly since mid-2009, are now only 1.6% below the prior peak in mid-2008. Imports are 7.9% below their pre-recession peak. In other recent news, new claims for unemployment insurance plummeted 36,000 last week to 383,000, the lowest level since July 2008. Claims have been volatile lately, a combination of holidays and unusually severe winter weather. The four-week moving average of claims is 416,000, well below the 475,000 level of six months ago. Continuing claims for regular state benefits declined 47,000 in the prior week to 3.89 million. Meanwhile, the level of claims may be exaggerating job losses. Workers have been applying for benefits more aggressively than in the past, a result of long durations of unemployment and unusually generous benefits (see blog post). Correcting for the higher willingness to apply for benefits, payrolls will soon start expanding as if initial jobless claims were below 350,000.
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