June import prices rose 2.6%, the U.S. Labor Department announced Friday, driven higher by rising petroleum prices and a falling dollar.

Excluding the often-volatile petroleum component, June import prices increased 0.8%, the Labor Department said.

Economists surveyed by Bloomberg News had expected June import prices to rise 1.8%. Import prices also rose a revised 2.6% in May; they increased 2.8% in April, and 3.1% in March.

In the last 12 months import prices are up 20.5% -- the biggest year-over-year increase on record, the Labor Department said. It's also a level that historically indicates that U.S. consumer price inflation will trend higher, due to price pressure from foreign goods/services.

Prices for imported petroleum were a major factor in the aforementioned price rise -- up 78.6% in one year.

Meanwhile, U.S. exports prices increased 1% in June, after rising 0.4% in May. Farm export prices increased 2.2%, while non-farm exports increased 0.9%.

Economist David H. Wang said the June import/export price report was yet another negative one for the U.S economy. "The report continues to feature the impact of record-high oil prices, which are boosting inflation just about across the price spectrum," Wang said. "Import prices are making the Fed's [U.S. Federal Reserve's] job of lowering inflation harder. The U.S. needs a substantial, sustained decline in oil prices to get control of inflation."

The U.S. trade deficit fell to $59.8 billion in May (PDF file), the U.S. Commerce Department announced Friday, as exports rose at a much faster pace than imports in the month.

Economists surveyed by Bloomberg News had expected the May trade deficit to be $62.1 billion. The April trade deficit totaled $60.2 billion; March, $56.5 billion.

In May, exports increased to 0.9% to $157.5 billion. Imports increased 0.3% to a record $217.3 billion, with imported petroleum increasing 6.5% to $31.2 billion - - a cost component that accounted for almost the entire increase in the import total.

During May, the average price for a barrel of crude oil increased a record $9.47 to a record $106.28, the Commerce Department said.

U.S. exports shine again in May

Economist David H. Wang told BloggingStocks Friday the May trade deficit report "represents good news on an otherwise very sub-par economic landscape. Once again, as in April, if you take away oil and control for inflation, we can see a continued downward track in the deficit, led by rising exports," Wang said. "International demand for U.S. goods is a bright spot in our economy. Without it, we would be in a pronounced recession."

The need to fulfill promises of increased aid for Africa, and a general agreement between the United States and Russia on an approach to Iran's nuclear program took center stage as leaders from the Group of Eight industrial nations met Monday in Japan, The Associated Press reported.

President Bush, attending his last summit as a sitting U.S. president, underscored the importance of providing aid for Africa, calling on wealthy nations to provide mosquito netting and other aid to prevent needless deaths, the AP reported.

Basic items - - even equipment as basic as mosquito netting - - can reduce mortality rates in sections of Africa. Mosquito netting prevents children and others from dieing of bites from disease-carrying mosquitoes.

In 2005 the G-8 pledged to increase global aid to $130 billion, and increase assistance to Africa to $50 billion. ONE, a nonpartisan group working to end extreme poverty, predicted that the U.S. and the United Kingdom will meet their commitments, while France, Italy, Germany and Canada are off the mark, Bloomberg News reported Monday.

Increased global food aid likely

Economist Glen Langan, whose specializations include agricultural economics, said increased aid for food and agricultural development will likely be announced by G-8 leaders at the summit, or soon thereafter, due to the rising cost of food's impact on poorer nations. "The aid will be targeted to meeting basic needs first, but with an eye toward directing some funds to self-sustaining agriculture," Langan said, adding that Africa "has the potential to achieve food production gains greater than South America."

In comments made June 23 to Germany's Die Zeit but published only today, European Central President Jean-Claude Trichet warned of an "explosion" in inflation if the bank does not act decisively to counter it, Reuters reported Wednesday.

"If we are not resolute, there is a risk that inflation will explode. If we act decisively, then we can master the situation," Trichet said in the German text of comments published by weekly Die Zeit on Wednesday.

Trichet's comments appear one day before the ECB's meeting on interest rates. Many economists expect the ECB to increase its key interest rate, the refinance rate, by 25 basis points to 4.25%. (The ECB decision will be announced Thursday at 7:45 a.m. EDT.)

At issue: How to check inflation

European inflation is running at a 3.7% annualized rate, and trending up. That fact, combined with Trichet's comments published Wednesday, "all but guarantee a rate hike Thursday by the ECB," in economist David H. Wang's interpretation.

In a surprise, the U.S. manufacturing sector increased production and expanded in June.

The Institute for Supply Management Manufacturing Index rose to 50.2 in June from 49.6 in May, the Institute announced Tuesday. It was the first increase for the index since January. Readings above 50 indicate economic growth; readings below 50, economic contraction.

Economists surveyed by Bloomberg News had expected the index to drop to 48.7 in June 2008.

Economist David H. Wang Tuesday cautioned against taking a too positive interpretation of the June ISM manufacturing data. "We have to keep in mind that this is just one month and the trend had indicated contraction for five months," Wang said. "Also, we are barely above 50, and the index could easily drop below 50 in the next month, which would be consistent with a continuing contraction, so evaluate the June results in that context."

European business confidence declined more than forecast, the European Commission announced Friday -- an indication slowing euro-zone economy and rising inflation are beginning to lower business executives' expectations for the immediate quarters ahead.

The EC's sentiment index fell to 94.9 in May from 97.6 in April. It was the index's lowest reading since May 2005, Bloomberg News reported Friday.

Europe's major stock markets closed mixed Friday on the news. London's FTSE gained 11.70 points to 5529.90, Germany's DAX decline 37.69 to 6,421.91, and France's CAC 40 dropped 28.87 to 4,397.32.

Europe's execs: in defensive mode

London-based economist Mark Chandler told BloggingStocks that the slowdown in the United States, record oil prices, and rising inflation on the continent have but many of Europe's executives in defensive mode.

"Maybe the biggest concern is the impact of the slowdown in America and its affect on trade. Executives here are really concerned about a possible deeper U.S. recession dragging Europe lower. Their concern is well-rooted, because there's just not enough Asia demand to compensate," Chandler said. "Oil prices hitting $140 are another negative. It's not going to hurt the U.K. as much, but Europe could really be hurt by consumers cutting back spending on retail goods.

The U.S.'s recent economic doldrums, combined with a 4-year-plus economic expansion that produced less-than-optimal-results in several statistical categories, has caused investors' recollection of robust economic times to fade from memory.

For a refresher, albeit not an ideal case study, regarding what a robust economy looks like, consider China's economy: China's retail sales surged 21.6% in May compared to a year ago, Bloomberg News reported Friday, a rate seven times faster than May retail sales growth in the United States.

Retail sales increased to 870.4 billion yuan or $126 billion in May after rising 22% in April, on strong auto sales and building material purchases, Bloomberg News reported Friday.

Import prices increased 2.3% in May -- higher than expected -- driven by near record-high prices for imported oil and natural gas, the U.S. Labor Department announced Thursday. Excluding energy, import prices increased a scant 0.5% in May.

Economists surveyed by Bloomberg News had expected import prices to rise 2.0% in May. Import prices increased 2.4% in April and 3.0% in March.

In May, imported petroleum increased 7.8%, and natural gas increased 5.4%. Further, petroleum prices rose 68.8% for the year ended May 2008 -- the largest 12-month advance since the index increased 82.5% between February 2002 and February 2003.

Meanwhile, export prices increased 0.3% in May 2008, its smallest rise since September 2007. Further, export prices rose 8% over the past year.

It's Uncle Ben versus the Ferocious Fundamentals.

The dollar rose more than 1.7 cents against two other major currencies Tuesday -- a large move in the currency market -- after U.S. Federal Reserve Chairman Ben Bernanke said the world's most important central bank will "strongly resist" any dip in public confidence in stable prices, Bloomberg News reported.

Traders interpreted Bernanke's comments as renewed Fed attention to oil-induced, rising U.S. inflation, and bought the dollar, sending it higher Tuesday at mid-day. The dollar strengthened 1.7 cents to $1.5477 versus the euro, 2.1 cents to $1.9540 versus the British pound, and almost 1 yen to 107.19 versus Japan's yen.

A 'dollar skeptic'

Further, although Chicago Board of Trade futures calculate a 55% chance of a Fed quarter-point interest rate increase in its benchmark rate when it meets next on August 5, currency trader Andrew Resnick remains a doubter.

The U.S. trade deficit rose to $60.9 billion in April, the U.S. Commerce Department announced Tuesday, as the rising cost of imported oil offset gains in goods exported.

Economists surveyed by Bloomberg News had expected the trade deficit to be $59.5 billion. Also, the March trade deficit was revised lower to $56.5 billion from the previously announced $58.2 billion.

In April, imports increased to 4.5% to $216.4 billion, with imported petroleum driving up the total. The United States paid a record $96.81 average price for a barrel of oil during the month. Exports increased 3.3% to $155.5 billion, boosted by sales of commercial aircraft, autos, machinery, and agricultural equipment.

Meanwhile, the nominal April trade deficit, which controls for inflation, fell to $46.9 billion - - its lowest level in about 5 years.

Bad news, Good news

Economist David H. Wang told BloggingStocks Tuesday he's emphasizing the good news in the report which he argues is the more substantive and telling dimension of the report.

"If you take away oil and control for inflation, we can see a continued downward track in the trade deficit, led by rising exports," Wang said. "As we saw in the February and March trade data, international demand for U.S. goods is a bright spot in our economy. Without it, would will be in a pronounced recession."

The dollar plunged Friday after Morgan Stanley said oil prices could rise to $150 and after data indicated the U.S. employment rate surged to 5.5% in May.

The dollar fell one cent versus the euro to $1.5694 and about three-quarters of a cent versus the British pound to $1.9640. The dollar also declined about one half-yen to 105.55 versus Japan's yen.

A Morgan Stanley report ended what had been a mild dollar rebound over the past week. Morgan Stanley said oil prices could rise to $150 per barrel, due to Asia's likely accelerating purchase of Middle East oil exports, Bloomberg News reported Friday. Oil surged $6.54 to $134.54 per barrel in early trading Friday, on top of Thursday's large $5.49 gain.

Also Friday, the U.S. Labor Department announced that the nation's unemployment rate surged to 5.5% in May from 5.0% in April, as U.S. companies continued to cut expenses to protect profits in the face of the economic slowdown.

So much for the (latest) dollar rally

Currency trader Andrew Resnick told BloggingStocks Friday the oil/unemployment double-whammy would be tough for a strong currency to withstand, let alone the fragile dollar.

"We were experiencing a modest dollar rally, and there were signs of strengthening dollar-bullish sentiment. The Fed may raise interest rates and oil prices up until a few days ago were trending lower on the belief global oil demand will drop off. But the dollar-bulls have been defeated again," Resnick said. He added that he was presently flat after being stopped out of dollar long positions in the euro-dollar and British pound-dollar currency pairings.

Further, Resnick said the Thursday/Friday events underscores how hard it is for the market to sustain a dollar rally in the face of dollar fundamentals that have remained decidedly negative for more than four years.

"It's the old problem of the terrible twins, the U.S. trade deficit and the federal budget deficit," Resnick said. "People had talked up the ability of the dollar to gain support on [Fed Chairman] Bernanke's interest rate pause, but the fundamentals laid waste to that sentiment again," Resnick said. "Until the deficit numbers show steady improvement, and the [U.S.] economy starts to grow, it's hard to see the dollar sustaining a rally. The economy is simply too weak right now."

Readers of this space know that the railroad sector is one of the preferred sectors. After decades of unconscionable neglect, U.S. railroads are experiencing a resurgence, driven by international trade, commodities transport, and the rail's cost advantage over truck transport.

Further, the revival of the rails is not exclusive to one nation in North America. Canada also is seeing a healthy growth in railroad services and Canadian Pacific (NYSE: CP) is worth a review.

Analysts see 4-6% revenue growth for CP in 2008, in Canadian dollars, with grain, fertilizer and oil sands related shipment gains offsetting declines in forest products.

Another positive: analysts also expect CP to continue to improve rail system efficiency and fluidity, will overall better asset utilization

The ever-incisive FT columnist Martin Wolf reminds us that while globalization's prize is plus-sum (everyone gains), as opposed to zero-sum (Country A gains only if Country B loses), it is not perfect sum (there are costs) nor egalitarian sum (everyone gains equally).

The biggest advantage of globalization, in Wolf's view? The spread of prosperity, including a wider distribution of innovation and bigger opportunities for profitable exchange/trade. Also valuable, although not guaranteed, Wolf says, is increased political stability in previously impoverished countries.

Globalization marches on

Further, in the globalization era's first decade, the United States can't do anything to halt the flow of ideas, and the diffusion of knowledge, skills, technology systems, and so forth, Wolf argues. Or at least the United States can't do anything decent to stop globalization.

The U.S. manufacturing sector continued to pare production in May 2008, but at a milder-than-expected pace. The Institute for Supply Management Manufacturing Index for May 2008 increased to 49.6 in May 2008 from 48.6 in April 2008, the institute announced Monday.

It was the fourth consecutive monthly decline for the index. Readings above 50 indicate economic growth; readings below 50, economic contraction.

Economists surveyed by Bloomberg News had expected the index to drop to 48.5 in May 2008.

The index registered growth in seven of 18 categories in May 2008:

Seven industries reported growth in May 2008, the ISM said: computer & electronic products; miscellaneous manufacturing; primary metals; paper products; chemical products; food, beverage and tobacco products; and fabricated metal products. Eleven industries reported a contraction in May 2008: apparel, leather and allied products; electrical equipment, appliances and components; wood products; machinery; plastics and rubber products; transportation equipment; non-metallic mineral products; printing and related support activities; and furniture and related products.

Economic Analysis: A surprisingly tame May 2008 ISM manufacturing data point. Demand for products overseas is driving an export revival and it's propping-up U.S. commercial activity even as domestic demand remains sluggish-to-poor, depending on the sector. Still, the overall manufacturing index remains below 50, indicating an obvious deceleration in the GDP growth rate and a likely economic contraction. Hence, while investors / traders can cheer the export numbers, they should keep in mind the large housing / energy price headwinds likely to damper U.S. economic growth for several quarters, or longer, if energy prices remain at record-high levels.

Readers of this space know that one of the preferred sectors is the railroad sector. The once near-rust-belt level sector has experienced a revival at the start of the globalization age, and compelling economic trends document the commerce-based underpinnings of this revival.

Most transportation officials agree that the U.S. transportation infrastructure -- highways, roads, bridges, mass transit systems -- is in need of a major upgrade in order to meet the nation's vehicle transportation needs of the 21st century.

The nation's public officials will begin to address the above concern in the years ahead, as public funds become available, but until they do, and due to crude oil's sustained high price, an opportunity has emerged for another transportation form: you guessed it, the railroads. And Norfolk Southern (NYSE: NSC) is a railroad worth an evaluation.

Norfolk Southern provides rail transportation in the eastern United States, operating a 21,000-mile rail network in the eastern United States and Canada. It's an elaborate intermodal and coal service network that also has a large freight business.