U.S. recession fears on the rise in face of trade gap, struggling domestic economic mainstays.

Sources:

Record US trade deficit casts doubt on growth (Financial Times)
Beige Book Reads Like Goldilocks (The Street.com)
New worry: A hard 'soft landing' (CNNMoney.com)
Trade gap record near $70 billion (CNNMoney.com)

The U.S. reported a record high trade deficit in August despite increases in exports. Reported at a total of $70 billion, the largest deficit is with China, at $22 billion.

One commentator, a University of Maryland economist, suggested that an element of the import/export disparity between the U.S. and China is the latter’s insistence on “pegging” its currency to the U.S. dollar instead of allowing it to rise in a manner accurately reflecting the strength of the Chinese economy. Regardless, the continuing trade deficit raises concerns that the U.S. economy will see less growth in the third quarter than originally forecasted (i.e., well below 2%).

Additionally, the Federal Reserve Board today released its “beige book,” a survey of economic indicators provided by its 12 districts. While White House economists and others urged that the economy is holding steady, the report showed further slippage in two mainstays of the U.S. economy — housing and domestic automobiles — and industry representatives report that it is unlikely that either market has yet hit its lowest ebb.

A lagging housing market could have a substantial impact on the nation’s economy because of diminished access to cash by virtue of smaller increases in equity and other affected businesses (e.g., home improvement, builders). Likewise, the "Big 3" automakers have reduced output due to decreased demand while imports of autos into the U.S. is on the rise, a situation which may reflect a movement away from SUVs and light trucks toward more fuel-efficient models. Slowing in housing and domestic auto markets, together with the growing trade gap, has contributed to fears that the U.S. economy is in for an all-out recession.

Perhaps the brightest spot in U.S. financial reports is the recent fall in oil prices, one of the commodities that saw increased imports in August. However, economists caution that the fact that prices will still be at historical highs.

Questions:

Is China undervaluing its currency? If so, is there something that could or should be done about it?

What can the U.S. do to strengthen exports? To what degree might globalization and the trend of relocation to other countries by many U.S. manufacturing interests contribute to the nation’s continuing trade deficit?

Has the U.S. depended too much on its domestic housing market to keep its economy afloat?

Related Information:

For more information on the beige book, click here.