We got a nice surprise on the trade front despite the recent run up in oil prices. The overall U.S. trade deficit in November shrank slightly to $38.3 billion from a revised $38.4 billion gap the month before (original estimate of $38.7 billion). The November deficit was much less negative than market expectations for a $41.0 billion shortfall. A combination of factors led to the improvement. Exports rose 0.8 percent, following a 3.0 percent jump in October. Imports rebounded a modest 0.6 percent after declining 0.8 percent in October.<br><br>The narrowing of the trade deficit was primarily in the nonpetroleum goods gap which eased to $30.3 billion from $30.8 billion in October. The services surplus also edged higher. The petroleum differential widened to $20.1 billion from $18.9 billion the month before.<br><br>By end-use categories, the increase in goods exports was led by a $1.0 billion gain in consumer goods with foods, feeds & beverages up $0.6 billion. Also rising were capital goods. The automotive category dipped $0.6 billion.<br><br>The rebound in goods imports was led by a $1.9 billion boost in industrial supplies-largely oil imports. Foods, feeds & beverages rose $0.2 billion while capital goods rebounded $1.0 billion. Imports of autos and consumer goods declined $0.4 billion and $0.9 billion, respectively.<br><br>Today's report is good news for manufacturers which are seeing continued gains in exports. We are likely to see economists nudge up their estimate for fourth quarter GDP due to the favorable trade numbers for December.<br><br>There was little initial market reaction. Partially offsetting the good news on trade was an unexpected jump in initial jobless claims.<br><br>

The Fed may be in a quandary soon if not already. While core inflation is still tame, headline inflation is running higher than expected. And unemployment is not coming down as hoped. But focusing on today's inflation numbers, the overall PPI inflation rate remained on the hot side in December with a 1.1 percent boost after jumping 0.8 percent in November. The December boost topped the consensus forecast for a 0.9 percent increase. At the core level, the PPI rate slowed to 0.2 percent a 0.3 percent rebound the prior month. Analysts expected a 0.2 percent rise. <br><br>By components, food prices gained 0.8 percent, after a 1.0 percent jump in November. The energy component continued a strong upward trend, surging 3.7 percent in December after rising 2.1 percent the prior month. Within energy, gasoline spiked 6.4 percent after jumping 4.7 percent in November. The core was kept somewhat soft in part by a 0.4 percent decline in prices for passenger cars.<br><br>For the overall PPI, the year-on-year rate increased to 4.1 percent from 3.5 percent in November (seasonally adjusted). The core rate firmed to 1.4 percent from 1.3 the prior month. On a not seasonally adjusted basis for December, the year-ago the headline PPI was up 4.0 percent while the core was up 1.3 percent.<br><br>There was little market reaction. Also out at the same time, initial unemployment claims unexpectedly jumped while the international trade deficit was smaller than forecast. Today's PPI numbers will heat up the debate at the Fed during the end of month FOMC meeting as inflation pressures are rising while unemployment remains high. And it is not just energy that is a concern as food prices are being pressured by higher commodities prices.<br><br>