Significant Improvement in Trade Balance a Big Plus for Q1 GDP
The trade balance narrowed to $25.97 billion in February from $36.2 billion in January. The trade deficit has fallen $32.3 billion in a six-month period, the largest six-month change on record. The trade deficit in February is the smallest since December 2001! (See chart 1.) Exports of goods and services increased 1.6% after a string of six monthly declines. After adjusting for inflation, the 3.1% increase in exports of goods in February is the first monthly increase since August 2008. The 5.1% drop in imports of goods and services in February is a continuation of a declining trend which began in August 2008. Inflation adjusted imports of goods fell 5.3% in February. The sharp improvement in the trade deficit is a big plus for first quarter GDP. We are working on the revision of our forecast of first quarter real GDP.
Imports of goods and services have dropped nearly 34% and exports have declined a little over 24% from the peak in July 2008 (see chart 2). Petroleum imports fell 8.7% in February, reflecting lower prices and a smaller quantity of imports. Non-petroleum imports dropped 4.8% in February after a 5.2% decline in the prior month.
The trade deficit narrowed vis-à-vis China ($14.2 billion vs. $20.1 billion in January), Canada ($1.82 billion vs. $2.49 billion in January), Japan ($2.2 billion vs. $4.3 billion in January) and the Euro area ($2.4 billion vs. $3.4 billion in January) but widened vis-à-vis Mexico ($3.1 billion vs. $2.7 billion in January. The improvement of the trade deficit with regard to China appears to be a seasonal aberration – we need additional information to confirm.
In related news, the import price index moved up 0.5% in March, primarily due to higher prices for imported petroleum. Excluding fuels, the import price index fell 0.5% in February. On a year-to-year basis, both import price indexes maintain a downward trend.
Initial Jobless Claims: Glimmer of Hope?
Initial jobless claims dropped 20,000 to 654,000 during the week ended April 4. On a year-to-year basis, seasonally unadjusted initial jobless claims rose 73.2%, which represents a deceleration in the number of jobless claims being filed compared with the peak year-to-year increase of 91% during the week ended March 7. To this extent, the weekly labor market report is marginally bullish about the economy. However, continuing claims moved up 95,000 to 5.84 million and the insured unemployment rate rose to 4.4% from 4.3% in the prior week. We will be tracking these data closely for an early warning about the economy.
