4 Factors Clobber U.S. Economy - Modern Distribution Management

4 Factors Clobber U.S. Economy

Low oil prices, declining yuan, unfavorable currency exchange and soaring trade deficit taking toll.
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Economic headwinds escalated in recent days, as oil fell to a six-year low and the Chinese yuan continued its decline, compounding the gloom already felt in the U.S. because of an unfavorable currency exchange and soaring trade deficit.

Oil prices sunk 6 percent to around $39 a barrel today following an 8.5 percent decline on the Shanghai Composite Index as economic turmoil ravages China – and the rest of the world along with it. As we noted last week, China's devaluation of its currency, the yuan, may have ripple effects throughout the global economy, some of which are starting to emerge.

"Today's falls are not about oil market fundamentals. It's all about China," Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt, told the Reuters Global Oil Forum. "The fear is of a hard landing and that things get out of the control of the Chinese authorities."

Meanwhile, the U.S. trade deficit swelled nearly $3 billion to $43.8 billion in June, which is "deeply troubling" to Ernest Preeg, senior adviser for international trade and finance at the Manufacturers Alliance for Productivity and Innovation. For the first half of 2015, U.S. exports of manufactures were down by 1 percent, imports were up by 5 percent and the deficit soared by $48 billion, or 19 percent, compared with the same period a year ago.

"This increase in the deficit equates to a trade-related loss of over 300,000 American manufacturing jobs during the first half of 2015, and accelerates the pace of job losses over the past five years, which resulted in job losses of 2 million," he said.

On Wall Street, stocks were clobbered, and companies are likely to cite the growing economic turmoil in their third-quarter earnings reports; many referenced the strong U.S. dollar's impact on currency exchange and softness in the oil patch for declining income last quarter.

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