Reports show economy gathering strength


Reports show economy gathering strength

Trade deficit narrows, inflation subdued


Thursday, January 15, 2004

Washington — A batch of new economic reports Wednesday provided fresh evidence that the U.S. economy is continuing to gain momentum, with an unexpectedly sharp narrowing of the trade deficit and a strengthening of business activity in most parts of the country as the new year began.

The Federal Reserve reported in a nationwide survey that the economy continued to rebound from late November to the early part of this year, with retailers reporting a boost from a late surge in holiday shopping and even growing signs that the nation’s battered manufacturing sector was beginning to pull out of its steep nose dive.

The Fed survey, compiled from reports from the Fed’s 12 regional banks, said “the nation’s economy has continued to strengthen” into the early part of January, with gains in such areas as auto and home sales and hints that rising orders were prompting manufacturers to begin rehiring some of the 2.8 million factory workers laid off over the past 3 1/2 years.

In another encouraging sign, the Commerce Department said Wednesday that the nation’s trade deficit posted a surprising decline to $38.0 billion in November, down 8.6% from the October deficit and the smallest imbalance in 13 months.

The narrowing deficit reflected a 2.9% jump in exports, to $90.6 billion, led by a surge in sales of civilian aircraft and soybeans and other farm products. Imports, which had hit a record high the previous month, dipped 0.8%, to $128.6 billion in November.

Analysts credited stronger global economic growth and the falling value of the dollar against other currencies for the revival of U.S. exports and said the rebound was a major factor in their forecasts for a revival in manufacturing in the coming year.

“It’s nice when economics actually works,” said Joel Naroff, head of a Holland, Pa., economic forecasting firm. “The weaker dollar appears to be doing what it is supposed to do: increase exports, lower imports and narrow the trade deficits.”

A third report Wednesday showed that the 13.5% drop in the dollar against other major currencies over the past year had not triggered one unwelcome side effect, rising inflation.

The Labor Department reported that inflation at the wholesale level rose just 0.3% in December, reflecting a jump in energy prices. The Producer Price Index of wholesale prices had fallen by 0.3% in November.

Outside of the volatile energy and food sectors, the closely watched core inflation rate fell by 0.1% in December, matching the decline in November. It was only the third time since 1974 that the core inflation rate had posted consecutive monthly declines.

For the year, wholesale prices were up 4%, the biggest gain since 1990 and a reflection of the gains in energy prices. The core inflation rate outside of food and energy was up a much more benign 1%.

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