US: Consumption and Imports

Two pieces of news from the US today may well be related. The FT reports on on data from the US Employment Cost Index. This shows that core inflation rose 3.1 per cent in the year to March whilst salaries climbed just 2.4 per cent.Whatsmore in the final three months of 2004, real wages fell by 0.9 per cent.

"The last time salaries fell this steeply was at the start of 1991, when real wages declined by 1.1 per cent......

Many economists believe that in spite of the unexpectedly large rise in job creation of 274,000 in April, the uneven revival in the labour market since the 2001 recession has made it hard for workers to negotiate real improvements in living standards.

Even after last month's bumper gain in employment, there are 22,000 fewer private sector jobs than when the recession began in March 2001, a 0.02 per cent fall. At the same point in the recovery from the recession of the early 1990s, private sector employment was up 4.7 per cent."

Meantime todays news on the trade deficit front shows that imports into the United States fell by 2.5% in March when compared with February. Particularly noteworthy was the drop in imports from China. Could it be that continuing high oil prices and slow earnings growth are finally eating away the vitals of the principal pillar of the global economy, the US consumer? Clearly it is impossible to decide on the basis of one months data, but still.....

"The U.S. trade deficit narrowed unexpectedly to $55.0 billion in March in the largest drop in over three years, as exports hit a record and imports from China declined, a government report showed on Wednesday.


The 9.2 percent plunge in the deficit defied Wall Street forecasts. Analysts had expected high oil prices and a flood of clothing from China to push the monthly trade gap to around $61.5 billion, which would have been a new record........

Imports of clothing, textiles and related goods from China fell 21.2 percent during March after a 9.8 percent increase in February. But imports of those products in the first three months of the year are 54 percent higher than last year, as the result of a surge in January when quota restrictions on textile imports expired.

Total imports from China declined 4.4 percent to $16.2 billion in March. That helped cut overall imports by 2.5 percent to $157.2 billion -- the largest monthly drop since December 2001, the same as the trade gap."