Fellow Shortrunners,

     The US seems highly bellicose these days.  First conflict with Iraq and now disputes with the EU and Mexico.  This ironic thing is that the economic stakes of these new confrontations, fought in the legal rooms of the WTO rather than on Middle Eastern deserts, are much higher.  Nor are these battles nearly as one-sided.  The US is suing Mexico over charges that it is unfairly using anti-dumping rules to prevent agricultural exports heading south across the border and it is suing the European Union on the grounds that restrictions on the export of genetically modified foods constitute an illegal trade barrier.  At the same time, the EU is charging the US with imposing illegal restrictions on steel imports and recently won a large battle over a US tax law that supposedly provides a competitive advantage for US exporting firms.

     Why are so many trade disputes arising so suddenly?  A good portion may be lost love between the US and the EU over the war in Iraq.  Another factor may be retaliation.  The EU reacted promptly to the US imposition of steel tariffs (a move that was illegal under current trade laws agreed upon by the US and the EU).  The second victory by the EU over US tax advantages allows the EU to slap the US with some $4 billion in sanctions.  An attempt by the US to win concessions from the EU on GM foods may thus be an effort to lessen the blow.  Whatever the reason, as US trade representative Mr. Zoellic and the White House to continue to purport to be overtly in favor of free trade plans around the globe, perhaps more effort should be done in managing our current relations with our major trade partners. 

Economic Releases
The data section provides charts and data for the most important economic indicators.

Wholesale Inventories: -0.1%
Release Date: 6/09

• During April, inventories at wholesales in the US declined an average of 0.1%.  At the same time, the more heavily watched inventory-to-sales ratio spiked, rising 0.02% from recent lows to reach 1.23.  Overall inventory figures are largely being governed by swings in automobile stocks which are rising as automakers are unable to push their excessive capacity with further rebates.

Import/Export Prices: -0.3%/0.1%
Release Date: 6/12

• Falling import prices should help to offset the fall in the dollar's value.  It seems that exporters around the world are being forced to cut prices to keep up volumes with the US, given a decline in their competitive position.  The weak dollar should help to keep the US economy running, provided the rest of the world's economy can remain afloat enough to absorb further US exports.

Business Inventories: 0.1%
Release Date: 6/12

• Businesses added 0.1% to their inventories during April.  It is clear that businesses are coping with the changing levels of demand during this period of economic weakness.  Overall business sales during April declined 1.5%.  The falling level of sales pushed the inventories to sales ratio to 1.40.

Retail Sales: 0.1%
Release Date: 6/12

• The Commerce Department reported that retail sales rose 0.1% during May.  A core measure of retail sales, excluding energy, would put retail sales healthily growing at 0.4% during the period.  This suggests that growth in fundamental level of demand in the economy is still strong and that the largest component of economic growth.  Consumer spending rather than governmental expenditure should continue to drive the economy despite our current massive fiscal stimuli.

Jobless Claims: 430,000
Release Date: 6/12

• For the week ended, initial jobless claims slipped to 430,000 from 447,000.  While this was good news, both continuing claims and a moving average of initial jobless claims were up for the week.  It is clear that the labor market is acting as a drag on economic growth.

1st Quarter GDP Revision: 1.9%
Release Date: 6/13

• The Bureau of Labor Statistic's revision to 1st quarter GDP raised its estimate from 1.6% to 1.9%.  The stronger performance was due in a large part to an upward revision in consumer spending, the largest component of GDP.

Trade Balance: -$42 billion
Release Date: 6/13

• On Friday, the Commerce Department reported a US current account deficit totaling some $42 billion in April.  The number represented a slight improvement on March, but most economists believe that the current deficit level is still unsustainable.  Given time and further weakening of the dollar, I would for look to further improvement in the trade balance in the near future.  Falling oil prices should also help to cool the figure.

Producer Price Index: -0.3% Core 0.1%
Release Date: 6/13

• The Bureau of Labor Statistics' Producer Price Index declined 0.3% in March, on the heels of its largest ever monthly decline, 1.9% in April.  While the headline Producer Price Index is suggesting deflation, the core index was much tamer, rising a moderate 0.1% during the same period.  Indeed, the great majority of the fall in the headline PPI of late has been the result of declining oil prices.  These declines should translate into savings for consumers at the pump as well as into general deflationary pressure as supplier costs for things such as energy and shipping decline.

ECRI Weekly Leading Index: 123.2
Release Date: 6/13

• The ECRI Weekly Leading Index slipped to 123.2 from 123.6 the previous week.  Economist for the ECRI suggested that the economy was recovering in spite of a failure for new jobs to be created.  Their explanation is very reminiscent of the post-recession period in the early 1990s.

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Issue #156

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