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Economic Week in Review: Sharp increase in February trade deficit
The week’s rather light offering of economic data revealed that the nation’s trade deficit grew significantly in February. In addition, consumers continued to use credit cards in February to finance their spending—albeit at a slower rate. Tuesday’s release of the minutes from last month’s Federal Open Market Committee (FOMC) meeting shed light on the extent of concerns over slowing economic growth and rising inflation. For the week, the S&P 500 Index fell 2.7% to 1,333 (for a year-to-date total return of –8.7%). The yield of the 10-year U.S. Treasury note fell 1 basis points to 3.47%.

FOMC minutes showed strong concerns
According to its March 18 meeting minutes, the FOMC was clearly concerned about the seizing-up of economic growth as measured by the decrease in the nation’s real gross domestic product. This factor, as well as ongoing problems in the financial markets, was top of mind when it announced a three-quarter percentage point reduction in its target for the federal funds rate. Inflation concerns, particularly the impact of higher energy prices, also played a pivotal role in the committee’s rate-cutting decision. Amid the broad array of factors affecting the economy, the committee believed that lower short-term interest rates “should help buoy economic activity and ameliorate strains in (the financial) markets.”

February trade deficit jumped
Despite the ongoing weakness of the U.S. dollar, the nation’s trade deficit in goods and services grew 5.7% in February, to $62.3 billion, according to the Commerce Department. The increase surprised analysts, who had expected the gap to shrink. It marked the second consecutive gain and left the deficit at its highest level since November. Imports rose 3.1% from January, while exports increased 2.0%. In an interesting development, imports of petroleum decreased in February following 11 consecutive monthly increases. Over the past year, both exports and imports have posted strong gains; exports have grown 20.8%, and imports have risen 16.4%.

Consumers tapped the brakes on borrowing
The Federal Reserve reported that total consumer credit outstanding rose in February by $5.2 billion to $2.54 trillion. This gain, however, was roughly half that of January’s $10.3 billion increase. The majority of February’s gain came from growth in revolving credit—namely credit card debt—which rose $4.7 billion, or 5.9% at an annualized rate. Non-revolving debt—such as auto loans—grew at a tepid 0.4% annualized rate. Weak vehicle sales were the main factor in the slower growth in non-revolving debt.

The economic week ahead
The coming week will offer a much more robust helping of news for economy-watchers to digest. The week kicks off with Monday’s readings on retail sales and business inventories. Also on tap are gauges of producer prices (Tuesday); consumer prices, new residential construction, industrial production, and regional economic conditions (Wednesday); and leading economic indicators (Thursday).