THE BASIS POINT

EU Situation Lowering U.S. GDP?

Trade Balance
The formula for GDP is:

Y= C(onsumer Spending) + I(nvestment Spending) + G(overnment Spending) +(eXports -iMports)

X-M (Exports minus imports) is the trade balance.

In November X-M went from -$43.5 billion to -$47.8 billion. Imports were higher because of oil prices but exports were lower because of what is happening in Europe. A weak EU economy and a strong dollar decrease U.S. exports to Europe and decrease U.S. GDP.

Import and Export Prices
-Export Prices, Month/Month -0.5%
-Export Prices, Year/Year +3.6%
-Import Prices, Month/Month -0.1%
-Import Prices, Year/Year +8.5%

With GDP growth so minimal any decrease in exports will eat a substantial piece of what would otherwise have been an increase in GDP. The situation in the EU may be good for mortgage rates but it is bad for GDP and will likely increase the Federal deficit.

Consumer Sentiment (January)
-University of Michigan Consumer Sentiment Index rose from 69.9 to 74.0
-This is a survey index intended to measure future consumer spending.
-This level is the highest in eight months
-These results are at odds with yesterday’s weak Retail Sales