U.S. trade deficit jumps

Posted by Dionne Searcey on June 4, 2014 

The U.S. trade deficit jumped to a two-year high in April, the government reported Wednesday, but despite the seemingly bad news, the new data, along with a variety of other recent statistics, signal the economy is getting back on a moderate growth path after a setback in the first quarter.

The Commerce Department said total April exports of $193.3 billion and imports of $240.6 billion resulted in a goods and services deficit of $47.2 billion, up from a revised $44.2 billion in March. The gap was higher than economists had expected.

Exports declined by 0.2 percent to $193.3 billion as imports rose 1.2 percent to $240.6 billion, driven by an increase in consumer goods, capital goods, automotive vehicles, parts and engines as well as food and beverages and other items. The numbers indicate an upswing in business activity and expectations for greater spending in the months ahead, economists said. That is a silver lining to the clouds generated by the nation’s overall inability to produce enough domestically to match the demand for consumer goods from abroad.

“Rising imports are not a sign of economic weakness,” said Joshua Shapiro, chief U.S. economist for MFR. “To the contrary, it’s a sign of economic demand.”

Other economic data released Wednesday generally fell short of expectations but was viewed as consistent with solid growth in the second quarter, especially in light of weak growth in the first quarter because of bad weather.

A survey of hiring by ADP Employer Services, a unit of the payroll processor Automatic Data Processing, showed fewer hires than economists had expected, but the numbers were still rising. Private sector payrolls increased by 179,000 nonfarm jobs from April to May, according to the ADP report. Economists had expected hiring to come in at 215,000. ADP also revised its April employment increase down to 215,000, from 220,000.

Small businesses added 82,000 jobs, ADP said. Manufacturing added 10,000 jobs and construction added 14,000 jobs.

“After a strong post-winter rebound in April, job growth in May slowed somewhat,” Carlos A. Rodriguez, president and chief executive of ADP, said in a statement. “The 179,000 jobs added figure is higher than May of last year and in line with the average over the past 12 months.”

Although the company’s numbers are seen as a precursor to the jobs report set to be released by the Labor Department on Friday, the connection between the two is fairly unreliable, economists point out. Last month, ADP’s report indicated far lower numbers than the big jump that ultimately came out in the government’s jobs report. Economists expect a robust increase in payrolls when the jobs numbers are released Friday.

Productivity slowed

The unemployment rate could rise, too, when the Labor Department releases data for May on Friday, economists say, because it has fallen sharply in recent months as large numbers of people dropped out of the workforce. As those job seekers return and new graduates enter the workforce, the unemployment rate could rebound.

New numbers released Wednesday also showed that productivity, which measures the output of the economy per hours worked, has slowed since 2012. Nonfarm business sector productivity fell at a 3.2 percent yearly rate in the first quarter. Output fell 1.1 percent and hours worked grew 2.2 percent.

The U.S. nonmanufacturing Institute for Supply Management index rose to 56.3 in May from 55.2 in April, a slightly higher level than expected and the highest reading since August.

After viewing the releases Wednesday morning, Doug Handler, the chief U.S. economist for IHS Global Insight, chalked up the decline in the economy in the first quarter to an aberration and said he was optimistic about the rest of the year. He expects second-quarter growth to rebound to about 3.5 percent, and the third quarter to grow as well, though at a slower pace of 2.5 percent to 3 percent.

“Finally by the fourth quarter we can start seeing some economic numbers we don’t need to equivocate so much,” he said.

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