The U.S. trade deficit fell in July to its lowest level in five months as exports rose broadly, signaling underlying strength in the economy amid concerns about a global growth slowdown.
While other data on Thursday showed an increase in the number of Americans filing new applications for unemployment benefits, the trend in jobless claims remained consistent with a strengthening labor market. Activity in the vast services sector also hovered at a 10-year high in August.
"There is little evidence that the abrupt deterioration in financial market conditions and the heightened concerns about the global economy have begun to affect the U.S. economy," said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
The Commerce Department said the trade gap narrowed 7.4 percent to $41.9 billion, the smallest since February. When adjusted for inflation, the deficit fell to $56.2 billion from $59.0 billion in the prior month.
The smaller deficit implied a modest contribution to gross domestic product from trade early in the third quarter. Trade added 0.3 percentage point to the economy's 3.7 percent annualized growth rate in the second quarter.
Data ranging from consumer spending to employment and housing have suggested the economy retained much of its momentum from the second quarter and was on solid footing when global financial markets were rocked by turbulence triggered by worries over China's economy.
Stocks on Wall Street were trading higher after the data. Investor sentiment also was boosted after the European Central Bank indicated it could prolong its monetary stimulus program.
The dollar rose against a basket of currencies, while prices for longer-dated U.S. Treasuries fell.
In a separate report, the Labor Department said initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 282,000 for the week ended Aug. 29.
The claims data has no bearing on Friday's closely watched employment report for August as it fell outside the survey period. According to a Reuters survey of economists, nonfarm payrolls likely increased by 220,000 last month after rising 215,000 in July.
But job gains could come in below expectations as the first reading of August payrolls has tended to be weaker in the last several years before being revised higher.
EYES ON FED
The August employment report will be released less than two weeks before the Federal Reserve's Sept. 16-17 policy-setting meeting. There is speculation the U.S. central bank could raise interest rates at that meeting.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 3,250 to 275,500 last week.
It was the 23rd straight week that the four-week average remained below the 300,000 threshold, which is usually associated with a strengthening labor market.
A third report from the Institute for Supply Management showed its services industry index slipped to 59 last month from a reading of 60.3 in July, which was the highest since August 2005. A reading above 50 indicates expansion in the sector.
Fifteen out of 18 service industries, including real estate, construction and retail trade, reported an expansion in activity - the most since October. Only mining reported a contraction.
"The domestic economy is holding strong. The Fed must weigh this against the prospects of a weakening global economy as they decide whether to raise interest rates in two weeks," said Jay Morelock, an economist at FTN Financial in New York.
The strong services sector should help offset the drag on the economy from manufacturing, which has been hit by a strong dollar and spending cuts by energy companies.
But the buoyant dollar's negative impact on the economy is starting to ease. Exports increased 0.4 percent to $188.5 billion in July, the first rise since April. There were increases in exports of food, industrial supplies and materials, and capital goods in July. Automobile exports also rose.
Imports fell 1.1 percent to $230.4 billion, led by consumer goods such as pharmaceuticals and cell phones. However, automobile imports were the highest on record and the value of crude oil imports was the highest since January.
Soft import growth is usually associated with sluggish domestic demand. The weakness, however, is probably related to a slowdown in inventory accumulation as businesses try to whittle down a huge stockpile of merchandise accumulated in the first half of 2015.
The politically sensitive U.S.-China trade deficit was $31.6 billion in July, up 0.4 percent from June. That trade gap will be closely watched in the coming months in the wake of China's recent devaluation of its currency.
Exports to Canada fell 8.3 percent in July and could come under more pressure after the Canadian economy slipped into recession in the second quarter.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
Strange how a few people on these forums have stated many times the higher US dollar would slow the economy, how is it then that US exports are growing and contributing to GDP growth while the dollar rises in value. Perhaps other factors have an equal or greater influence then just simply the price of currency. But that would mean thinking beyond the obvious.
Jimbo :The USA has a currency problem. The US Dollar is at least 25% more valuable than it was a year ago against most major trading partners.
This makes imports cheaper and exports much more expensive.
So why would anybody start a manufacturing business in the USA? Maybe a year ago you might. The USD was nice and cheap, there was slack in the labour force. But not today.
Why would the Fed raise rates and strengthen the dollar further? Why do this when everybody else is loosening policy?
The answers used to be simple ten years or so ago. Lower rates and weaken the currency to stimulate growth, raise rates to keep inflation down.
But none of this works anymore. It hasn't worked since 2008. We have rates on the floor and non existent inflation at the same time. How will raising rates stoke growth and inflation?
Strange how a few people on these forums have stated many times the higher US dollar would slow the economy, how is it then that US exports are growing and contributing to GDP growth while the dollar rises in value. Perhaps other factors have an equal or greater influence then just simply the price of currency. But that would mean thinking beyond the obvious.
I said "So why would anybody start a manufacturing business in the USA?"
From the article you just posted
"The strong services sector should help offset the drag on the economy from manufacturing, which has been hit by a strong dollar and spending cuts by energy companies."
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
I said "So why would anybody start a manufacturing business in the USA?"
From the article you just posted
"The strong services sector should help offset the drag on the economy from manufacturing, which has been hit by a strong dollar and spending cuts by energy companies."
Quote:
The positive side of the recent dive in oil, gas prices
Until a few years ago, the prevailing wisdom saw America’s manufacturing sector in secular decline, unable to compete with lower-cost production in Mexico and China.
Between 2000 and 2010 the number of manufacturing jobs in the U.S. dropped by a third, a decline of more than 5.8 million.
But since 2010, manufacturing companies have added more than 1 million workers. Similarly, the value of production from America’s factories has jumped from $1.7 trillion in 2010 to $2.1 trillion last year and now accounts for 12 percent of our gross domestic product.
Labor costs have been rising rapidly in Mexico and China, as well as other export-oriented Asian economies, while American companies have boosted productivity faster than their competitors abroad.
But the most important factor in America’s industrial renaissance has been cheap and abundant energy, a result of the “fracking boom” that spread across the U.S. about six year ago and has boosted America’s oil and natural gas output by 70 percent.
Consequently, the average cost to manufacture goods in the U.S. is now only about five percent higher than in China and 10 to 20 percent lower than in major European economies.
According the Boston Consulting Group, by 2018 production costs in America will be three percent cheaper than in China.
Natural gas, diesel and gasoline prices have dropped dramatically, significantly lowering energy costs for households and businesses. But most beneficial to manufacturers has been the falling cost of electricity, much of it now generated by natural gas turbines.
Energy-intensive industries like steel, aluminium, paper and petrochemicals are now enjoying power costs 30 to 50 percent lower than their foreign counterparts.
Abundant energy supplies are helping the U.S. in other ways, such as reducing our trade deficit and attracting foreign investment, especially in heavy manufacturing.
Increased use of clean natural gas for power generation is largely responsible for reducing America’s greenhouse gas emissions to their lowest level in 20 years.
The shale boom has also helped revive a number of industrial areas in the Northeast and Midwest that had recorded job losses for decades.
Cheap energy is helping the auto industry rebound, with the result that Michigan has recovered 40 percent of the manufacturing jobs it lost during the Great Recession while Detroit has added more than 89,000 industrial jobs since 2009, an increase of 31 percent.
Without question, the dramatic drop in oil prices over the past year, due to a global oversupply of about 2 million barrels per day, is posing tremendous challenges to America’s energy industry.
The drilling rig count has dropped by 60 percent, while companies large and small have announced layoffs in the thousands.
But the oil and gas industry has always been highly cyclical, and it will rebound when global supply and demand come into balance.
In the meantime, cheap and abundant energy is giving U.S. manufacturers a “leg-up” in the global economy while creating much-needed high-wage jobs for America’s workers.
Strange how a few people on these forums have stated many times the higher US dollar would slow the economy, how is it then that US exports are growing and contributing to GDP growth while the dollar rises in value. Perhaps other factors have an equal or greater influence then just simply the price of currency. But that would mean thinking beyond the obvious.
Would be good if you occasionally read the articles you posted, then we would be spared your foolish nonsense.
Quote:
Soft import growth is usually associated with sluggish domestic demand. The weakness, however, is probably related to a slowdown in inventory accumulation as businesses try to whittle down a huge stockpile of merchandise accumulated in the first half of 2015.
However, automobile imports were the highest on record and the value of crude oil imports was the highest since January.
The politically sensitive U.S.-China trade deficit was $31.6 billion in July, up 0.4 percent from June.
“Talk sense to a fool and he calls you foolish.” - Euripides
The Commerce Department said the trade gapnarrowed 7.4 percent to $41.9 billion, the smallest level since February.
$42 Billion. Wow!!
Today’s Federal Debt is about $18 TRILLION.
At the end of FY 2015 the total government debt in the United States, including federal, state, and local, is expected to be $21.694 TRILLION
Since they owe over 360 times the deficit, why not just give those they have a trade imbalance with the cash and add it to the 18 Trillion? It's chicken feed compared to their total liabilities. But I guess if they did that then they couldn't point to what a great job they have done reducing the deficit.
Mike posts a load of crap as usual. You missed your calling mike. You should have gone into politics, everything you post here comes straight of a twin tubs spin dryer.
"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." John Stuart Mill
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