Trade Deficit Drags on Recovery
NEW YORK (TheStreet) -- On Friday, the Commerce Department is expected to report the deficit on international trade in goods and services was $46 billion in December, slightly lower than in November, owing to moderating oil prices and slower inventory build among U.S. wholesalers and retailers.
Overall, the deficit is a significant tax on aggregate demand and jobs creation, just as a government deficit increases demand for U.S.-made products and boosts employment. In the coming months, higher oil prices and stronger inventory build should push up the trade deficit again and drag on economic recovery.
Persistently high trade deficits and continuing low real estate values are the most significant reasons why the current economic recovery is slowest since the Great Depression, and why the Congress and President face so much difficulty stabilizing federal finances without risking a second, deeper recession.
Consumer spending has expanded, though haltingly, and the annual federal deficit increased from $161 billion before the financial crisis to more than $1 trillion over the last five years, injecting enormous additional demand into the system. However, too many consumer dollars go abroad for Middle East oil and Chinese goods that do not return to buy U.S. exports.Businesses, consequently, are pessimistic about future demand for U.S.-made goods and services. And bearing higher taxes, more burdensome regulations, and increased benefits costs mandated by Obamacare, they are reluctant to hire in the United States and seek opportunities abroad.
Those barriers frustrated the virtuous cycle of temporary tax cuts and additional government spending, new hiring, and additional household spending that the first-term Obama stimulus sought to beget. Now, the Fiscal Cliff deal will raise combined federal and state tax rates for many small businesses on expansion and reinvestment to maintain existing facilities to more than 50% -- even more in California and New York. Prior to the Fiscal Cliff tax increases, economists predicted growth of about 2% for 2013. However, these new taxes on small business investment and innovation strike at the heart of this once vibrant American jobs-creating machine. Look for growth in the range of 1.5% and a tougher jobs market at least through mid-year.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV