wnyc.org / 93.9fm / am 820

There is a bit of optimism today about the direction of the US economy. The Labor Department says the number of people signing up for jobless benefits dropped to the lowest level in two months. And the government released another report, showing that in July, American exports climbed to the highest level in nearly two years, narrowing the US trade deficit.

Markets rose Wednesday. The Dow climbed 28 points today to close at 10,415. The S&P 500 and Nasdaq each gained less than half a percentage point.
 
Britain's financial regulator says the investment bank, Goldman Sachs, has agreed to pay a fine of about $27 million for failing to notify authorities about an investigation in the United States. The British agency began its own investigation in April, after the US Securities and Exchange Commission filed civil fraud charges against Goldman Sachs for allegedly misleading buyers in 2007 of its complex mortgage-related investments.

A Sign of Hope for the Economy?

After weeks of what felt like daily reports telling us that the economic recovery has stalled, the government reported today that the trade deficit shrunk in July, and that the drop was largely due to a surge in exports of American-made goods, like commercial planes, fuel oil and gold. So maybe -- just maybe -- the trade deficit, of all the economic indicators out there, could be a sign that the U.S. economy is actually doing better? Nigel Gault, the chief US economist with IHS Global Insight weighs in.

For the past few weeks, we've had one bad report after another.  But this report on trade -- some good news there, maybe?

It's nice to get a better-than-expected report for a change. We did have a nice bounce up in exports. It was a very, very good month for aircraft exports. And we also saw a big decline in imports after a huge surge at the end of last quarter, which really hurt second-quarter growth. We've now got a big, big drop back in imports, and that's also good news.  

So exports growing, what specifically does that tell you?

I think it's telling us that there's still pretty decent growth in the rest of the world, particularly in the emerging markets, and that is fueling overall growth in world trade. I think it's also telling us that, if we look at the value of the dollar in an historical perspective, the dollar is pretty competitive. So that allows the US to take advantage of some of this global growth.    

Now how about jobs -- could we possibly see more jobs created from these exports?

I think if you think long-term, export growth is going to be an important source of jobs. In the short-term, unfortunately, we didn't get a lot of this extra export growth in the manufacturing sector, just out of extra productivity rather than creating new jobs. But I think it will be an important job channel going forward.

Keeping that mind, for the second week in a row, the number of people filing for unemployment fell from the previous week.  How good is this news, or was there something behind this drop?

There are a couple of things here. These numbers are very volatile from week to week. The latest week, some of those numbers were just estimated. Some states didn't submit numbers because of the Labor Day holiday. So we'll have to wait another week to see if this drop gets confirmed. I also suspect that over the last few weeks, claims have come down partly because they've been a bit inflated previously, by temporary census workers who lost their jobs, were filing for unemployment insurance. So maybe the previous news hadn't been quite as bad as it looked at the time.   

How much does this weekly jobless figure need to drop for economists, like you, to actually see an economy that is really on the path to growth?

I think for us to feel really good, we'd need to start to see these initial unemployment claims dropping below the 400,000 mark. Right now, the latest week was at 450,000. That's good, because just a few weeks ago we were near 500,000. But we're still quite some way away from that 400,000 mark.

That's the historic marker, right?

That's right, that's what we look at. Once we fall below that mark, then we start to think that the job market is starting to really improve. 

About year ago, we heard a lot of talk about looking for the green shoots of the economy. It feels a bit like those shoots got stomped on, or simply died. What signs are you looking for that indicate economic growth?  

We're certainly watching the employment numbers month by month, and that's why people look at these unemployment insurance claims. We've got to see our firms feeling more confident about stepping out and hiring. Also watching firms' spending patterns, are they feeling more confident about going out and purchasing new equipment to equip their workers with. So a firm business confidence, also certainly month to month watching the trend of consumer sentiment. It's been rather weak lately. If the consumers start to feel better, and firms start to feel better, that's really the key to getting the economy moving again.

And of course a lot depends on Washington. The President has a series of proposals now to stimulate economic growth, and Republicans have proposed their own.  How likely are we to get anything from Washington, and even if we did, will it have any impact?

Doesn't look like we're going to get much of substance, because of political gridlock. The things the president's proposing, R & D tax credit, would be good news, but not much effect in the short-term. He's also looking to expand depreciation allowances -- may help bring a little bit of spending in 2011, but not a game-changer. He's also looking for more infrastructure spending, that's a long-term thing. Again, not an immediate game-changer.