BLBG: U.S. Economy: Trade Gap Widens, Jobless Claims Hit 26-Year High
By Bob Willis and Timothy R. Homan
Dec. 11 (Bloomberg) -- U.S. exports slid to a seven-month low and the number of Americans filing claims for unemployment benefits surged to the highest level since 1982, signaling the economy is shrinking even faster than previously estimated.
The export slump, caused by recessions spreading through U.S. trading partners, spurred a widening in the trade deficit to $57.2 billion in October, a Commerce Department report showed in Washington today. Initial jobless claims rose more than forecast to 573,000 in the week ended Dec. 6, the Labor Department said.
Rising joblessness will deepen the pull-back in spending by consumers, and the worsening trade balance removes what had been a source of support for an economy that’s been in a recession for a year. The Bush administration said the Labor report shows why U.S. senators should approve an emergency loan for automakers, to prevent a bigger hit to jobs from that industry’s collapse.
“We’ve yet to see the deepest monthly loss of jobs for the current recession, and that’s somewhat frightening,” John Lonski, chief economist at Moody’s Capital Markets Group in New York, said in a Bloomberg Television interview. Payrolls may fall a combined 1.1 million in December and January, on top of the 533,000 drop in November, he said.
Treasuries climbed, while stocks were little changed. The dollar fell as the cost of borrowing in the U.S. currency decreased, indicating less demand for year-end funding.
Yields on 10-year Treasuries fell to 2.67 percent at 11:51 a.m. in New York, from 2.69 percent late yesterday. The Standard & Poor’s 500 Stock Index was at 899.6. The dollar dropped 1.9 percent to $1.3272 per euro and 1 percent against the yen.
Slide in Exports
American exports dropped 2.2 percent to $151.7 billion as foreign purchases of U.S. aircraft, automobiles, chemicals and food waned. The trade gap was projected to narrow to $53.5 billion, according to the median forecast in a Bloomberg News survey of 70 economists. The shortfall was $56.6 billion in September.
“Conditions are deteriorating at a fairly rapid pace globally,” said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York. “Demand destruction for exports” is a new threat to a domestic economy that is already seeing “consumers pulling back sharply,” he said.
Economists at Morgan Stanley in New York following the trade report projected the economy will contract at a 6 percent annual pace this year. Prior to the figures they estimated it would shrink 5 percent.
Global Slowdown
The global credit crunch is slowing growth in Europe, Asia and Latin America. Japan’s economy will shrink 0.2 percent in 2009, while the euro area will contract 0.5 percent, the International Monetary Fund said last month. John Lipsky, the IMF’s first deputy managing director, yesterday said the fund will reduce its 2.2 percent global growth estimate.
Cummins Inc., the maker of more than a third of North America’s heavy-duty truck engines, said this month it will eliminate at least 500 jobs by the end of the year because of “continued deterioration” in the U.S. economy and other key markets. Cummins said in October that sales growth will be about 12 percent this year, lower than it previously forecast, as the U.S. and European economies weakened.
A decline in airplane deliveries by Boeing Co., reflecting the effects of a two-month strike that was resolved Nov. 1, contributed to the softening in American exports. Boeing delivered four aircraft overseas in October, down from six in the prior month, according to company data.
U.S. Slump
Imports declined 1.3 percent to $208.9 billion, the lowest level since March. Decreases in demand for foreign-produced automobiles, televisions, computers and fuel reflected the worsening slump in U.S. consumer and business spending.
Rather than helping shrink the trade gap last month, as most economists predicted, oil contributed to the deterioration. A record $15.56 drop in the price of imported crude in October was swamped by a 70.9 million-barrel jump in purchases that was also the biggest ever, the report showed. Excluding petroleum, the trade gap was little changed at $24.5 billion.
Slumping sales are forcing companies to slash staff. Dow Chemical Co., the largest U.S. chemical maker, said this week it will cut 5,000 jobs and reduce the company’s contractor workforce by about 6,000.
AT&T, the largest U.S. phone company, will eliminate 12,000 jobs, striving to trim expenses, the Dallas-based company said this month. Wyndham Worldwide Corp., the franchiser of Ramada and Super 8 hotels, said Dec. 8 it would cut 4,000 jobs as it restructures its time-share unit.
Firings by Industry
Firings at manufacturers, particularly makers of industrial machinery and electrical equipment, were mainly responsible for increases in claims two weeks ago among a wide swath of states from Wisconsin to Arkansas and Oregon. The breakdown also showed service industries, construction companies and even government agencies were cutting payrolls.
The number of workers staying on benefit rolls reached 4.429 million in the week to Nov. 29, the most since 1982, today’s Labor Department figures showed.
Jobless claims were estimated to rise to 525,000, according to the median projection of 39 economists. Continuing claims were projected to rise to 4.1 million, according to Bloomberg’s survey.
The four-week moving average of initial claims, a less volatile measure, rose to 540,500, the highest since December 1982, from 526,250, today’s report showed.
Obama Stimulus
Mounting job losses and falling home prices increase the likelihood that the U.S. recession will extend well into 2009, adding impetus to President-elect Barack Obama’s call for an economic stimulus package of unprecedented size.
Democratic lawmakers are also working with the Bush administration to extend $14 billion to General Motors Corp. and Chrysler LLC, to keep them operating through March. The House passed a bill yesterday, shifting the focus to the Senate. Republican opposition in that chamber threatens to delay or kill the legislation, prompting a warning today from the White House.
“We believe the economy is in such a weakened state right now that adding another possible loss of 1 million jobs is just something the economy cannot sustain at the moment,” White House Press Secretary Dana Perino said at a press briefing in Washington.
House Speaker Nancy Pelosi warned in a Bloomberg Television interview that she’s not prepared to call the House back into session to address a revised bill out of the Senate. “You never say never, but the fact is, I think it’s important for the Senate to know that this is a strong bipartisan bill.”
The economy has lost 1.9 million jobs so far this year as payrolls dropped for 11 consecutive months. U.S. companies eliminated 533,000 jobs in November, the most since 1974, and the unemployment rate increased to a 15-year high of 6.7 percent, the government said last week.
So far this year, weekly claims have averaged 412,000, compared with an average of 321,000 for all of 2007, when employers added a total of 1.1 million jobs.
Rising unemployment and the persistent credit crisis raise the likelihood the recession that began in December 2007 will turn into the longest slump in the postwar era. The U.S. economy contracted at a 0.5 percent annual pace in the third quarter.
To contact the reporters on this story: Bob Willis in Washington at bwillis@bllomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net
