AP News

Ahead of the Bell: US trade gap

WASHINGTON (AP) — The U.S. trade deficit likely narrowed slightly in March, which could provide support for economic growth.

Economists are forecasting that the trade deficit declined by 1.2 percent to $42.5 billion in March, according to a survey by FactSet. The Commerce Department will release the report at 8:30 a.m. EDT Thursday.

A narrower trade gap can boost growth if U.S. companies are earning more from overseas sales while U.S. consumers and businesses are spending less on foreign products.

In February, the trade deficit narrowed unexpectedly as exports climbed close to an all-time high while the volume of imported crude oil dropped to the lowest level in 17 years.

The politically sensitive deficit with China shrank to $23.4 billion in February, the lowest point in 11 months. Exports to the European Union, which is struggling with recessions in many countries, were down 0.9 percent in February, compared to January.Through the first two months of this year, the U.S. deficit is running at an annual rate of $524.5 billion, down slightly from last year's $539.5 billion imbalance.

Economists expect the deficit this year will narrow slightly, in part because of continued gains in U.S. exports, which give a boost to American manufacturing companies.

The Institute for Supply Management reported Wednesday that its index of U.S. manufacturing activity expanded at a slower pace in April, held back by weaker hiring and less company stockpiling. That raised worries that overall economic growth may slow this spring.

The manufacturing index slipped to 50.7 in April. That's down from 51.3 in March and the slowest pace this year. A reading above 50 indicates expansion.

Despite the decline in the pace of growth, economists noted that the survey still shows that manufacturing expanded for the fifth straight month. And there were some positive signs in the report including gains in production and new orders.

But a recession in the 17 European Union countries that use the euro and weaker global growth threaten demand for U.S. exports. A measure of export orders in the ISM survey grew at a slower pace in April.

The overall economy grew at an annual rate of 2.5 percent in the January-March quarter, disappointing expectations that growth would rebound at an even faster rate at the beginning of this year after a near-stall in activity in the final three months of last year.

However, the overall economy is being hurt by tax hikes and spending reductions designed to curb huge federal budget deficits.

The Federal Reserve at its meeting Wednesday stood by its aggressive efforts to stimulate the economy and reduce unemployment and held out the possibility that it is prepared to do more if growth doesn't rebound from the current soft patch which the central bank blamed in part on the government's tax increases and spending cuts to curb the deficit.

Many economists believe if the government's across the board spending cuts, known as a sequester, are not lifted, growth in the current April-June quarter and the rest of this year will come at a lackluster 2 percent or less.

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