Later this week investors will have their eyes on a report on the trade deficit. Many believe the trade deficit is what is holding the U.S. economy back. “The positive is the trade gap has been narrowing, but make no doubt about it, one of the reasons we have lost so many manufacturing jobs is because of the heightened competition from overseas,” said John Lonski, chief economist of Moody’s Analytics’ capital markets research group.
The consensus among economists is that the trade deficit will come in at $42.2 billion, lower than September’s deficit of $43.1 billion. During the time frame of January to September, the U.S. imported $552 billion worth of goods more than it exported. 40% of this gap comes from China. This gap has long been seen as a source of tension between the U.S. and China, though previous presidents have not been aggressive towards. China is a very important source of demand for companies especially automotive and construction companies such as GE and Caterpillar. China is also the biggest source of low-priced goods consumers see at stores like Wal-Mart.
Also China holds a lot of U.S. debt totaling more than $1 trillion and is probably closer to $1.5 trillion. China buys U.S. debt to artificially prop up the U.S. dollar against the Chinese currency which helps exports for China. The Obama administration has not labeled China as a currency manipulator, but a bill that would make it easier to sanction China has already passed the Senate. It has stalled in the House though as Republicans try to avoid the issue.
Other news coming out this week include ISM services numbers, factory orders, jobless claims, trade deficit numbers and consumer sentiment numbers. Needless to say, this week will be a busy one as investors digest all of this news plus whatever happens in Europe.