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International Factors
Updated September 15, 2005. The U.S. trade deficit as a percent of Gross Domestic Product has increased from 3.7% in the first quarter of 2000 to 5.7% for Quarter 2, 2005. The deficit worsened for both durable and non-durable manufacturing with the durable goods and non-durable goods deficits at -3.2% and -2.9% of GDP respectively. The U.S. actually ran a trade surplus in services at +0.6% of GDP. I expect the trade deficit as a percent of GDP to grow to 6% by the end of 2005 due to rising oil prices and slower GDP growth. As presented in the chart above, the value of dollar against a trade weighted basket of currencies declined in tandem with the increase in the trade deficit (no surprise there). Despite a rising trade deficit, I expect the value of the dollar to rise for Quarters 3 and 4 of 2005 due to rising short-term interest rates.