Markets & Finance

Vital Signs: Trade Gap May Widen


After a busy stretch of reports that showed more signs of slowing economic growth and reduced inflationary pressures in the labor market, the upcoming week provides a little time for analysts to catch their breath.

There are only a couple of economic reports that could greatly impact the financial markets. After a slide in the May consumer confidence index and weak weekly chain-store sales figures for the month, the Institute for Supply Management's non-manufacturing survey will be examined for signs of softer conditions, especially in the consumer sector. Respondents are mostly in the service sector, including real estate, retail, and construction. The index is projected to ease, but a larger than expected fall would add credence to analysts that forecast slower economic growth, particularly in consumer spending.

The April international trade report will also be important. The trade gap is expected to have widened to $64 billion in April, but that would still be smaller than any of the deficits posted between September and February. An increase in prices for petroleum products probably boosted the April level of imports, which are measured by dollar value.

However, the rise in imports was likely offset by gains in exports, especially among capital goods. In the first quarter of 2006, capital goods exports grew by an annual rate of 20% after a fourth quarter increase of 21%. Strong gains in capital goods exports should continue as long as economic upswings in the euro zone and Japan can keep going.

What's more, further weakening in the U.S. dollar could make U.S. exports more competitive abroad and imports a little pricier. Evidence of such trends would surface in the import and export price indexes, for which May data is due on Friday.

Here's the weekly economic calendar.

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