Wednesday, February 11, 2009

This is Deflation

Well, Helicopter Ben? What are you going to do now?

WASHINGTON (Reuters) – The U.S. trade deficit shrank 4 percent in December, as the global financial crisis cut U.S. imports and exports for the fifth straight month, while U.S. demand for mortgages tumbled nearly 25 percent last week as potential buyers held out for better terms.

The $39.9 billion trade gap was the smallest since February 2003, the U.S. Commerce Department said in its monthly report. The December shortfall followed a much bigger contraction in the November trade gap.

"There is a lot of credit crunch impact on global trade. Obviously, this is bad news for the economy," said Pierre Ellis, senior global economist with Decision Economics in New York. "The export weakness is intensifying."


Chinese trade figures for January, also released on Wednesday, showed China's exports fell 17.5 percent from a year earlier, after a 2.8 percent decline in December.

China's imports plunged 43.1 percent, twice as much as December's 21.3 percent year-on-year drop, the General Administration of Customs said on Wednesday.

Both falls were the steepest since economists' records began in 1993. Imports and exports have now fallen for three months in a row from their year-earlier levels.

U.S. imports of goods and services fell 5.5 percent in December, following an 11.9 percent drop in November, as businesses and consumers cut spending in the face of mounting economic woes.

Imports of autos and auto parts were the lowest since May 1999. Another big drop in the average price of imported oil to $49.93 per barrel, the lowest since December 2005, helped push the overall import tally lower.

U.S. exports of goods and services fell nearly 6 percent for a second month in a row, as the financial crisis took a bite out of foreign demand. Overall U.S. goods exports were the lowest since October 2006, and auto and auto parts exports were the lowest since November 2004.

However, both U.S. exports and imports set a record for all of 2008 and the overall trade gap declined for the second year in a row to $677.1 billion.

The bilateral U.S. trade deficit with China in 2008 hit a record $266.3 billion as imports from that country rose to a record $337.8 billion. At the same time, U.S. exports to China last year were a record $71.5 billion.

The average price for imported oil in 2008 was a record $95.23 per barrel, pushing imports from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries to a record $242.6 billion.


Requests for loans to buy homes sank last week to an eight-year low, the Mortgage Bankers Association said.

Expectations that government steps could yank 30-year home loan rates near 4 percent, a proposed $15,000 home-buying tax credit and the outlook for still lower house prices has raised the incentive to wait.

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