Trade Deficit Narrows; Wholesale Prices Muted

09/13/2005

NY Times
Published: September 13, 2005

Even with higher energy prices putting a crimp in the economy, the nation’s trade balance improved in July and wholesale inflation was muted in August, the government reported today.

The soaring costs of crude oil, gasoline and other energy products appear to have had a smaller overall impact on the two key economic variables in the two months preceding Hurricane Katrina’s landfall than analysts had expected, based on the trend so far this year.

The nation’s trade deficit narrowed by 2.6 percent, to $57.9 billion, as imports of consumer and capital goods fell and exports of industrial supplies and materials and capital goods rose. Economists were expecting the trade deficit to widen to $59.8 billion.

The producer price index, which measures what producers receive for their goods and services, rose 0.6 percent in August. Excluding the volatile energy and food prices, the core index was unchanged. Energy prices rose 3.7 percent and gasoline prices were up 9.7 percent. Economists were expecting an overall increase of 0.7 percent and the core rate to rise by 0.1 percent.

Compared with a year earlier, producer prices rose by 5.1 percent over all in August and 2.4 percent excluding food and energy.

Since the data does not account for the impact of the hurricane on the energy supply system and the rapid climb in gasoline and other fuel prices over the last two weeks, both inflation and the trade numbers could move higher in the coming months.

The decline in imports in July was particularly noteworthy given that the country spent $1 billion more on crude oil and other petroleum imports in July. Actual imports of oil and other petroleum products fell 3.3 percent when measured in terms of barrels, but the price per barrel soared 10.4 percent in just one month.

Several economists said the drop appears to be related to businesses’ growing reluctance to stockpile goods in their warehouses in anticipation of sales, a phenomenon that started as a spring cleaning of inventories and that appears to have persisted through the summer and into the fall. “They are trying to keep things very lean,” said Brian Jones, an economist at Citigroup.

Imports of consumer goods like drugs, clothes and jewelry fell 2.2 percent, and capital goods such as airplanes, drilling equipment and computers also fell by 2.2 percent.

The national average retail price for a gallon of regular unleaded gasoline was $2.956 this morning, according to AAA. That is down from a peak of $3.06 during the Labor Day holiday, but still more than 50 cents a gallon higher than it was a month ago and up more than a dollar more than a year earlier.

Economists expect the higher prices will restrain Americans’ appetites for all manners of goods and services, at least temporarily, as people adjust their habits and restrain purchases because they are paying so much more for transportation, electricity and, eventually, heating. “You are going to clearly see a hit to consumer spending,” said Joshua Shapiro, chief United States economist for Maria Fiorini Ramirez Inc., a research firm in New York. But “it’s not going to be anything more than temporary.”

But analysts caution that predicting the full breadth of the hurricane’s impact on the economy will be difficult, especially in the months immediately following it. For instance, the trade balance could show an improvement in September because Katrina shut down the Port of New Orleans, thus making it harder for imports to get to the country. “Because we import more than we export, we may get some unusually good-looking data on the surface,” Mr. Jones said.

Much more reliable information on the hurricane’s impact on the nation will become clear after some temporary supply disruptions have been dealt with in the coming months. Data from a few months hence will also be more relevant in gauging whether the hurricane has had more than a glancing impact on the national economy.

“Its hard enough forecasting when things are reasonably stable,” Mr. Jones said. “You have to take all of our forecasts with a grain of salt.”