Although households experienced an increase in their wealth during 2009, they have significantly cutback on borrowing.  In the fourth quarter of 2009, household net borrowing fell $54.4 billion, putting the annual decline at nearly $237 billion.  The significant pace of debt reduction is a big negative for consumer spending. 

At the same time, net lending in the economy continues to be problematic.  Net lending fell at annual rate of $577 billion in the fourth quarter vs. $361 billion drop in the third quarter.  Self-sustaining economic growth is unlikely to occur if this situation persists in 2010. 

International Trade:  Decline in Oil and Auto Imports Account for Narrowing of Trade Gap

The trade deficit narrowed to $37.29 billion in January from a revised $39.9 billion deficit in December 2009.  Exports and imports of goods and services dropped in January.  Inflation adjusted exports of goods declined 1.6% and that of imports fell 3.1%.  Exports of food (-2.3%), autos (-5.6%0, and capital goods excluding autos (-2.6%) accounted for a large part of the weakness in exports.  On the imports side, autos (-8.0%), petroleum (-3.1%), and consumer goods excluding autos (-2.6%) posted the significant declines.  The real trade deficit of goods narrowed to $41.0 billion in January from $43.8 billion in December.  However, the January reading of the real trade deficit nearly matches the fourth quarter average, implying that international trade will have a positive effect on real GDP in the first quarter if the trade gap narrows noticeably in February and March. 

 
In January, the trade deficit narrowed vis-à-vis Euro-area ($2.9 billion vs. 5.4 billion in December), Mexico ($4.6 billion vs. $5.2 billion in December), and Japan ($3.5 billion vs. $4.6 billion in December) but widened vis-à-vis China ($18.3 billion vs. $18.1 billion in December) and Canada ($3.9 billion vs. $3.0 in December). 

Total Continuing Claims Holding at Elevated Level

Initial jobless claims fell 6,000 to 462,000 during the week ended March 6.  The four-week moving average of initial jobless claims is up nearly 8,000 from a low of 469,000 in February.  Continuing jobless claims, which exclude initial claims be one week, rose 37,000 to 4.558 million and the insured unemployment rate held steady at 3.5%

Total continuing jobless claims, inclusive of those under special programs, edged down slightly to 10.2 million during the week ended February 20; these claims have held at over 10 million for eleven consecutive weeks.  A meaningful decline of these claims should signal that labor market conditions are indeed improving.