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

(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:

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.

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.

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.

--With assistance from Chris Middleton and Sophie Caronello

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net, Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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