Recent U.S. Trade Data Potentially Troubling

The U.S. trade deficit for April came in at $40.3 billion, up modestly from $40 billion the previous month, but Diane Swonk sees some worrisome trends ahead. To learn why, read on.

-Nelson Wang

An Over-Reliance on Consumption

Imports and exports both decreased modestly during the month, but were both up from a year earlier, which reflects the resumption of trade which came to a virtual standstill during the recession. More disturbing is more recent trade data from China, which shows a greater reliance on exports and a slowdown in domestic demand, which will hurt our exports. This is problematic as we must see a fundamental shift in the global economy, which still relies too heavily on the U.S. as the buyer of the last resort.

Indeed, if we ever hope to bring our own economy back into balance and repay our own debts, we will have to export more and import less than we have over the last decade. Foreign governments will have to move away from their over-reliance on exports and generate more domestic demand, while the U.S. de-leverages and weans itself from its over-reliance on consumption.

European Outlook Uncertain

The European Central Bank left its target rate unchanged at 1% today, but has done a one hundred eighty degree turnaround in its support of debt-ridden economies of southern Europe. The uncertainty regarding the outlook for Europe was almost comical, as ECB President Jean-Claude Trichet stated that the forecast for the European Union is somewhere between 0.2% and 2% (e.g., Europe will make it or it won't; we don't know.)

Jobless Claims Still High

Separately, jobless claims edged down to 456,000  in the most recent week after being revised up for the week prior. The net result is that unemployment claims remain stubbornly high. The only bright spot was continuing claims, which edged down slightly. This could add credence to the belief that hiring continues to edge modestly higher, but the series is notoriously volatile.

The bottom line is that the recovery continues, but remains more fragile with more uncertainties than anyone would like nearly a year after the recession appears to have hit a trough.

Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.