Dollar hits new euro low after tame inflation data

Marketwatch ^ | 9/28/2007 | Lisa Twaronite

[oblomov]

SAN FRANCISCO (MarketWatch) -- The dollar dropped across the board Friday, marking the seventh straight trading session in which it's sunk to a record low against the euro, after tame core inflation data suggested that the Federal Reserve has room to further cut interest rates. The euro was at $1.4270, after rising as high as $1.4277 earlier, well above $1.4147 in late U.S. trading Thursday. The dollar was buying 114.73 yen, down from 115.65 yen Thursday.

The dollar's drop accelerated after William Poole, the president of the St. Louis Fed, said in a speech that the central bank stands ready to cut rates again to keep the economy on a moderate growth track in the face of the financial market turmoil.

"My guess is that the inherent resilience of the U.S. economy along with future policy actions, should they be desirable, will keep the economy on a track of moderate average growth and gradually declining inflation over the next few years," Poole said in New York City.

Data released by the Commerce Department early Friday showed core consumer price inflation, which excludes food and energy prices, fell 0.1% in August, bringing core inflation over the past year down to 1.8%, the lowest since early 2004. See Economic Report.

"The greenback is under pressure across the board on Friday, as tamer core inflation data combine with U.S. slowdown concerns to weigh the unit down," wrote analysts at Action Economics.

The dollar has been in a tailspin against most of its major rivals since the Fed's surprisingly large, 50-basis point interest rate cut on Sept. 18, in a move aimed at preventing the subprime mortgage market meltdown from dragging down the broader economy.

[ex-snook]

Thanks for setting the record straight without cutting corners. Our export of jobs and dollars accelerates. Trade means we buy from you and you buy from us. Goods for goods.

[Toddsterpatriot]

Our export of jobs and dollars accelerates.

We exported so many jobs, our unemployment rate is 4.6%. We exported so many jobs, we have over 145 million employed.

[mysterio]

How low would you like the dollar to go?

[Toddsterpatriot]

Who said I’d like the dollar to fall?

[mysterio]

Well, you always seem to be finding the silver lining in our tanking dollar, so I was curious to know at what point will you finally admit that there might be a problem?

[Toddsterpatriot]

Well, you always seem to be finding the silver lining in our tanking dollar

There are benefits to a strong dollar, there are benefits to a weak dollar.

so I was curious to know at what point will you finally admit that there might be a problem?

If a sudden drop in the dollar causes foreign investors to flee dollar denominated investments.

[Rummenigge]

This one is from wikipedia:

“For the fourth quarter of 2004, according to OECD, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the USA and 7.4% in France. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the USA and 86.7% in France.”

You really have to make an efford to be part of the US unemployment statistics.

[Gvl_M3]

I don’t have time to research the numbers, but I thought one of you might have this answer at your finger tips.

Do these import/export numbers include fuel (oil, gasoline, diesel, Nat Gas, etc)?

If so, what is our trade balance without the fuel number included?

What is it if we used the price of oil from 10 years ago?

Thanks,
Chris

[remember]

I don’t have time to research the numbers, but I thought one of you might have this answer at your finger tips.

Do these import/export numbers include fuel (oil, gasoline, diesel, Nat Gas, etc)?

If so, what is our trade balance without the fuel number included?

I've likewise wondered that before but never had the time to research it. Following are the numbers from the Bureau of Economic Analysis:

      TRADE DEFICIT IN GOODS VS. PETROLEUM PRODUCT IMPORTS
                     (billions of dollars)

                                   Imports of            Deficit
       Imports   Exports   Deficit petroleum      % of w/o petro
Year  of goods  of goods  of goods  products   deficit  products
---- --------- --------- --------- --------- --------- ---------
1978     176.0    1420.8      33.9      42.6     125.4      -8.6
1979     212.0    1844.4      27.6      60.4     219.2     -32.9
1980     249.8    2242.5      25.5      79.5     311.8     -54.0
1981     265.1    2370.4      28.0      78.4     279.7     -50.4
1982     247.6    2111.6      36.5      62.0     169.8     -25.5
1983     268.9    2018.0      67.1      55.1      82.1      12.0
1984     332.4    2199.3     112.5      58.1      51.6      54.4
1985     338.1    2159.2     122.2      51.4      42.1      70.8
1986     368.4    2233.4     145.1      34.3      23.6     110.8
1987     409.8    2502.1     159.6      42.9      26.9     116.6
1988     447.2    3202.3     127.0      39.6      31.2      87.3
1989     477.7    3599.2     117.7      50.9      43.2      66.8
1990     498.4    3874.0     111.0      62.3      56.1      48.7
1991     491.0    4140.8      76.9      51.7      67.2      25.2
1992     536.5    4396.3      96.9      51.6      53.2      45.3
1993     589.4    4569.4     132.5      51.5      38.9      81.0
1994     668.7    5028.6     165.8      51.3      30.9     114.6
1995     749.4    5752.0     174.2      56.0      32.2     118.1
1996     803.1    6121.1     191.0      72.7      38.1     118.3
1997     876.8    6783.7     198.4      71.8      36.2     126.7
1998     918.6    6704.2     248.2      50.9      20.5     197.3
1999    1031.8    6839.7     347.8      67.8      19.5     280.0
2000    1226.7    7719.9     454.7     120.3      26.5     334.4
2001    1148.2    7187.1     429.5     103.6      24.1     325.9
2002    1167.4    6824.2     485.0     103.5      21.3     381.5
2003    1264.3    7134.2     550.9     133.1      24.2     417.8
2004    1477.1    8075.2     669.6     180.5      27.0     489.1
2005    1681.8    8946.3     787.1     251.9      32.0     535.3
2006    1861.4   10231.1     838.3     302.4      36.1     535.8

Source: Bureau of Economic Analysis, U.S. International Transactions Accounts Data,
        Table 2a and Table 2b

As you can see, the total value of petroleum product imports was just about 36 percent of the trade deficit (in goods) in 2006. Put another way, if we had been given all of our petroleum product imports for free, we would have still run a $536 billion dollar trade deficit. Hence, we cannot blame the trade deficit on the high price of oil. Of course, our dependence on imported oil may have costs beyond the direct cost to the trade deficit. Some suggest that the war in Iraq is one of those costs. But the trade deficit cannot be directly blamed on our dependence on imported oil, much less its current high cost.

[capitalist229]

The dollar is dropping because the global supply is too high so foreign investors are divesting out of dollar assets.

When the treasury TIC flows have fallen below Federal spending, the federal deficit will explode. Then watch out below.

BUMP

[Gvl_M3]

Thank you very much for that chart.

[Toddsterpatriot]

Excellent post. But I think your imports of goods column is wrong. Thanks.

[Toddsterpatriot]

Oops, exports of goods. Decimal in the wrong place.

[remember]

Excellent post. But I think your imports of goods column is wrong. Thanks.

Oops, exports of goods. Decimal in the wrong place.

You're right. In my spreadsheet, I divided by 100 instead of 1000 to convert from millions to billions. Thanks for catching the error. I'll repost the corrected table below:

      TRADE DEFICIT IN GOODS VS. PETROLEUM PRODUCT IMPORTS
                     (billions of dollars)

                                   Imports of            Deficit
       Imports   Exports   Deficit petroleum      % of w/o petro
Year  of goods  of goods  of goods  products   deficit  products
---- --------- --------- --------- --------- --------- ---------
1978     176.0     142.1      33.9      42.6     125.4      -8.6
1979     212.0     184.4      27.6      60.4     219.2     -32.9
1980     249.8     224.3      25.5      79.5     311.8     -54.0
1981     265.1     237.0      28.0      78.4     279.7     -50.4
1982     247.6     211.2      36.5      62.0     169.8     -25.5
1983     268.9     201.8      67.1      55.1      82.1      12.0
1984     332.4     219.9     112.5      58.1      51.6      54.4
1985     338.1     215.9     122.2      51.4      42.1      70.8
1986     368.4     223.3     145.1      34.3      23.6     110.8
1987     409.8     250.2     159.6      42.9      26.9     116.6
1988     447.2     320.2     127.0      39.6      31.2      87.3
1989     477.7     359.9     117.7      50.9      43.2      66.8
1990     498.4     387.4     111.0      62.3      56.1      48.7
1991     491.0     414.1      76.9      51.7      67.2      25.2
1992     536.5     439.6      96.9      51.6      53.2      45.3
1993     589.4     456.9     132.5      51.5      38.9      81.0
1994     668.7     502.9     165.8      51.3      30.9     114.6
1995     749.4     575.2     174.2      56.0      32.2     118.1
1996     803.1     612.1     191.0      72.7      38.1     118.3
1997     876.8     678.4     198.4      71.8      36.2     126.7
1998     918.6     670.4     248.2      50.9      20.5     197.3
1999    1031.8     684.0     347.8      67.8      19.5     280.0
2000    1226.7     772.0     454.7     120.3      26.5     334.4
2001    1148.2     718.7     429.5     103.6      24.1     325.9
2002    1167.4     682.4     485.0     103.5      21.3     381.5
2003    1264.3     713.4     550.9     133.1      24.2     417.8
2004    1477.1     807.5     669.6     180.5      27.0     489.1
2005    1681.8     894.6     787.1     251.9      32.0     535.3
2006    1861.4    1023.1     838.3     302.4      36.1     535.8

Source: Bureau of Economic Analysis, U.S. International Transactions Accounts Data,
        Table 2a and Table 2b

[investigateworld]

I would be cautious in using those figures. Over the years, I watched the Chicoms dismantle a hugh steel mill and several plywood plants here on the West Coast. Those are obvious ‘capital goods’ which also represent loss of employment etc etc.

[remember]

On looking at the numbers again, I noticed that we also have some small petroleum and products exports so the proper numbers to look at to determine the effect of petroleum on the trade deficit would be the imports I gave before minus those relatively small exports. You can see those numbers in the third table at http://home.netcom.com/~rdavis2/tbalcat6.html (the numbers I gave before are in the first table). In any case, that page also contains the following graph:

As can be seen, the petroleum and products deficit makes up less than a third of the trade deficit but is just a little less than the deficit in Industrial supplies & materials, the end-use category of which it's a part. As a percent of GDP, it's actually slightly smaller than it was in 1979 through 1981. In any event, the deficit in other consumer goods (other than food and automotive) is slightly larger than petroleum and the deficit in automobile vehicles, engines, and parts is about half as large.