Bloomberg News

Trade Gap Jumps to Two-Year High as Americans Buy Imports

June 04, 2014

A Container Ship is Unloaded at the Port of Los Angeles

The LT Cortesia container ship is unloaded at the Evergreen terminal of the Port of Los Angeles in San Pedro, California, on April 8, 2014. Photographer: Patrick T. Fallon/Bloomberg

The trade deficit ballooned in April to the widest in two years as Americans bought record amounts of consumer goods, business equipment and automobiles from abroad.

The gap grew by 6.9 percent to $47.2 billion from the prior month’s $44.2 billion, which was larger than previously estimated, Commerce Department figures showed today in Washington. The April reading exceeded all estimates in a Bloomberg survey of 70 economists and was the biggest since April 2012. Exports were little changed.

A rebound in U.S. growth after a harsh winter is likely to be driven by gains in consumer spending and business investment that will bolster imports. At the same time, slower expansions abroad will probably check gains in exports, keeping the trade gap elevated.

“The U.S. economy is expanding and so we’re pulling in imports from abroad,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, whose forecast for a deficit of $42.2 billion was the largest in the Bloomberg survey. “What was unexpected is that exports really didn’t move at all. This is a sign of relative weakness abroad, particularly in Europe, and also China has clearly slowed.”

Bloomberg survey estimates for the trade gap ranged from deficits of $38 billion to $42.2 billion. The Commerce Department initially reported a $40.4 billion shortfall for March. Today’s release included annual revisions from the Census Bureau and Bureau of Economic Analysis that affected data on goods and services back to 1999.

Another report today showed American workers were less productive in the first quarter as the harsh winter weather crippled the economy.

Less Productive

The measure of employee output per hour dropped at a revised 3.2 percent annualized rate, the worst performance in six years, after rising at a 2.3 percent pace in the last three months of 2013, a Labor Department report showed in Washington. Unit labor costs climbed at a 5.7 percent rate, more than the government previously estimated.

Also today, companies added fewer jobs than forecast in May, a sign of uneven progress in the labor market, a private report based on payrolls showed. The 179,000 increase in employment was the smallest in four months and followed a 215,000 gain the prior month that was less than initially estimated, according to figures from the Roseland, New Jersey-based ADP Research Institute. The median forecast of economists surveyed by Bloomberg called for May advance of 210,000.

Stocks fell on the weaker-than-projected payrolls survey. The Standard & Poor’s 500 Index dropped 0.1 percent to 1,922.21 at 9:54 a.m. in New York.

Imports Jump

The Commerce Department’s trade report showed imports climbed 1.2 percent in April to a record $240.6 billion from $237.8 billion in the prior month.

The gain included jumps in purchases of mobile telephones, autos and parts, computers and telecommunications equipment that signals spending by American consumers and business is strengthening in the second quarter.

At the same time, swelling imports mean fewer of the goods and services purchased are being made in the U.S., which will subtract from economic growth.

After eliminating the influence of prices, which generates the numbers used to calculate gross domestic product, the trade deficit jumped to $53.8 billion. That was higher than the $49.3 billion-a-month average in the first quarter, indicating trade will subtract from GDP.

Growth Impact

First-quarter gross domestic product, released last week by the Commerce Department, fell at a revised 1 percent annualized rate, the worst performance in three years. A widening trade gap shaved 0.95 percentage point from growth for the most since the second quarter 2010.

U.S. growth is set to pick up to 3.5 percent in the second quarter and 3 percent in the third, according to a Bloomberg survey of 75 economists.

Exports were little changed in April at $193.3 billion compared with $193.7 billion in March, today’s report showed.

China’s expansion lost steam in the first quarter, slowing to the weakest pace in six quarters. GDP rose 7.4 percent in the January-to-March period from a year earlier, the statistics bureau said April 16 in Beijing.

The International Monetary Fund projected, in its World Economic Outlook released in April, that advanced economies would expand at a 2.2 percent annual rate this year and 2.3 percent in 2015, after growing 1.3 percent last year. The IMF saw less marked improvement for emerging market and developing economies, with 4.9 percent and 5.3 percent growth this year and next, compared with 4.7 percent in 2013.

Fed’s View

Federal Reserve policy makers are monitoring risks abroad as potentially harmful to their growth estimates and their plans for winding down monthly asset purchases meant to stimulate the economy, which have ballooned the central bank’s balance sheet to an unprecedented $4.3 trillion.

“One prominent risk is that adverse developments abroad, such as heightened geopolitical tensions or an intensification of financial stresses in emerging market economies, could undermine confidence in the global economic recovery,” Fed Chair Janet Yellen told the Senate Budget Committee in May 8 testimony.

Political unrest in Ukraine and a military coup in Thailand are among recent global trends that also are keeping exporters on guard, including New Britain, Connecticut-based power tool provider Stanley Black & Decker Inc.

Political Risks

“Russia has got its own issues, as we know. Turkey, Thailand -- you start to go through the list of countries, and they’re just aren’t that many non-situation specific countries out there in the emerging markets right now,” James Loree, president and chief operating officer, said at a May 28 conference.

“This big initiative that we invested in the emerging markets, we’re still generating good growth, but it’s a choppy, difficult environment,” he said, noting that the company’s investments are yielding about 9 percent to 11 percent growth where they would be at 20 to 25 percent under the “same environment we had two years ago.”

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net


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