Trade data to hint at U.S. economic difficulties

Trade data to hint at U.S. economic difficulties
2 December 2011, by bureau chief. Steve Goldstein - Washington (MarketWatch)
http://www.marketwatch.com/story/trade-data-to-hint-at-us-economic-difficulties-2011-12-04

Excerpt:

After a week of key employment and manufacturing-sector data, Wall Street can be forgiven for directing their focus away from the economic reports that come out of the Capitol this week and toward Europe ahead of key meetings there.

But Friday’s upcoming report on the trade deficit offers insight into what some believe is restraining the U.S. economy from running at its full potential.

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Plus, at a time when rating agencies are admonishing the U.S. government for running up debt of over $14 trillion, China is an owner of $1.15 trillion worth of American debt, and probably a good portion of the $422 billion that the Treasury Department officially states is held in the U.K. (China uses London-based brokerage firms to buy American debt on its behalf.)

Of course, China isn’t buying U.S. debt as a favor, but as a pretty transparent attempt to artificially prop up the greenback against the Chinese renminbi, which in turn helps exports to the U.S. and elsewhere.

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“China and other emerging market economies have already taken some steps to promote household consumption, but the progress on this front has been slow and further measures are warranted,” the Fed’s number-two said.

Moody’s Lonski agreed that currency manipulation is only a small part of the issue.

“Right now you have a situation where Chinese labor costs are one-tenth of the U.S. costs, it makes Mexican labor look expensive,” he said. “On top of that, you have to deal with how China’s workforce has become increasingly skilled while remaining relatively cheap and inexpensive.”

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More broadly, the difficult trade situation shows up throughout the economy, from the lack of manufacturing jobs available, to the decline in real wages, and even to the lack of a recovery in the real estate market.

“There is an equalization of living standards, and we’re on the wrong side of the equation,” Lonski said.