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U.S. Trade Gap Narrows, Claims Remain Low, Productivity Tepid

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(Bloomberg) -- The U.S. trade deficit narrowed in March by the most in two years, while last week’s unemployment filings were below estimates and productivity gains remained lukewarm in the first quarter. Here’s what you need to know from the economic reports out Thursday morning:

TRADE BALANCE (MARCH)

  • Deficit narrowed to $49b from $57.7b in prior month (est. $50b); smallest gap since Sept.; 15.2% decline was most in two years, $8.8b drop was most since 2009
  • Imports fell 1.8% to $257.5b, biggest drop in two years; exports rose 2% to record $208.5b, biggest gain since Nov.
  • Exports advanced on shipments of civilian aircraft, soybeans, energy products; imports of consumer goods, capital goods declined
  • Goods-trade gap with Germany, OPEC members shrank; widened with China

The Commerce Department report adds more details on how net exports added to growth in the first quarter. Beyond March, imports are likely to rebound due to gains in household spending and business investment, while the decision by President Donald Trump’s administration to extend the temporary exemptions on metals tariffs may prompt companies to step up purchases of foreign steel ahead of the new June 1 deadline. At the same time, solid global growth is likely to support U.S. exports.

The merchandise-trade gap with China widened in March to $35.4 billion from $34.7 billion. Trump, who ran on a campaign promise to level the playing field for American companies and workers, has sent Treasury Secretary Steven Mnuchin and other top officials to China this week to help negotiate better terms for the U.S. and defuse concerns about an escalating trade spat between the two nations.

JOBLESS CLAIMS (WEEK ENDED APRIL 28)

  • Initial filings increased 2k to 211k (est. 225k)
  • Continuing claims fell by 77k to 1.756m in week ended April 21 (data reported with one-week lag); lowest since Dec. 1973
  • Four-week average of initial claims, a less-volatile measure than the weekly figure, fell to 221,500 from the prior week’s 229,250; lowest average since March 1973 

Initial claims bucked forecasts for a bigger increase, holding near the lowest level in almost a half century and adding to signs of a tightening labor market ahead of monthly jobs data due Friday. That report, also from the Labor Department, may show hiring rebounded in April after a soft March and the unemployment rate ticked down to 4 percent. A persistent shortage of qualified workers is causing employers to retain staff, keeping benefit claims near historically low levels.

PRODUCTIVITY (FIRST QUARTER)

  • Measure of nonfarm business employee output per hour increased at 0.7% annualized rate (est. up 0.9%) after upwardly revised 0.3% gain in previous three months
  • Unit labor costs rose at 2.7% annualized rate (est. up 3%) following 2.1% pace
  • Productivity rose 1.3% y/y, compared with 1.2% average from 2007-2017; unit labor costs rose 1.1% y/y

The data from the Labor Department are in line with paltry gains in efficiency over the last decade, amid relatively modest wage pressures and recent technological advances that have failed to spur a big increase in productivity. The measure may pick up in the second quarter, according to Bloomberg economists, as the first-quarter results also reflect slower gross domestic product growth.

Business-equipment spending has been strong over the past year, and tax cuts enacted in December were aimed at boosting capital investment. Those have the potential to push up productivity gains, which may be essential to reach Trump’s goal of 3 percent sustained economic growth.

©2018 Bloomberg L.P.

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