By BusinessWeek, Standard & Poor's, and Action Economics staff
More worrisome signs appeared for the U.S. economy on Sept. 11, as government reports showed continued weakness in the labor market and a larger-than-expected increase in the U.S. trade deficit in July.
U.S. initial jobless claims fell 6,000, to 445,000, in the week ended Sept. 6, following an upwardly revised 451,000 level the week before (revised from 444,000). Markets expected a 435,000 reading.
Continuing claims rose 122,000, to 3,525,000, in the week ended Aug. 30, the highest since the week of Nov. 8, 2003. The insured unemployment rate was 2.6%, up from 2.5% the week before.
The mix of data prompted Action Economics to adjust lower its initial labor-market assumptions for September. "As it stands, our nonfarm payroll forecast has been set at -75,000 for September, following the hefty 84,000 drop in August and declines of 46,000 to 101,000 in each month since January," wrote Action Economics analysts in a Web site posting.
Yawning Gap
The U.S. trade deficit widened sharply, to $62.2 billion, in July after narrowing to a surprising $58.8 billion in June (revised from $56.8 billion). Markets expected the deficit to come in at $58.0 billion. However, excluding petroleum, the trade deficit narrowed to $18.8 billion vs. a $21.5 billion gap in June.
Import prices posted a big 3.7% headline drop because of an expected 12% decline in imported petroleum prices and a 0.3% price drop excluding petroleum. Export prices posted a surprisingly large 1.7% August headline drop that was led by a huge 9.6% drop in food export prices, alongside a 0.7% drop ex-agriculture.
The trade deficit with China widened to $24.9 billion in July, compared with $21.4 billion previously.
The July reading was much wider than markets expected, and was likely to cause some profit-taking on the dollar and add more disappointments to stock markets, according to S&P Economics. Indeed, major U.S. stock indexes were lower in early trading on a mix of the weak data and worries about the health of Lehman Brothers (LEH) and other big names in the financial sector.
Federal Reserve policymakers "will certainly welcome the price reversals for food and energy over the last two months," notes Action Economics.