Last week's reports provide evidence of a stagnant economy. The trade deficit narrowed by $3.5 billion due largely to the largest drop in imports (-$6.1 billion) since at least 1992. Despite the positive implications of a narrowing deficit on real GDP, the large drop in imports suggests tighter budgets of domestic consumers and businesses. News from the financial markets was also negative as all three major stock indices fell and oil prices set yet another all-time high of $126.19 per barrel. On the positive side, first quarter productivity advanced at a 2.2% annualized pace or 3.2% from a year ago while unit labor costs rose at a 2.2% annualized pace or 0.2% from a year ago. Based on federal funds futures contracts, investors almost unanimously believe that the Federal Open Market Committee will hold the federal funds rate target at 2.00% at the June 24/25 meeting.

[ Mon, 12 May 2008 00:00:00 GMT ]

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