Positive December Trade Data Expected to Erase Negative on Q4 GDP
- The U.S. International Trade gap narrowed more than expected in December to -$38.5 billion.
- Nonfarm Productivity declined at a 2.0 percent annual rate in Q4 due to nonrepeating factors.
- Initial Claims for Unemployment Insurance fell by 5,000 for the week ending February 2, to 366,000.
The U.S. international trade gap is subject to meaningless month-to-month fluctuations. In the latest monthly data, for December, we see an unexpectedly rapid narrowing of the trade gap to -$38.5 billion. What adds significance to this number is the fact that Q4 real GDP growth was barely negative at -0.1 percent annualized, as barely as it can get and still be negative. The favorable December trade data will likely push Q4 real GDP growth into the slightly positive camp when the second estimate of 2012Q4 GDP is released on February 28. Total exports increased by $3.9 billion for the month on strength in industrial supplies and materials exports. Total imports declined by $6.2 billion as imports of industrial supplies and materials eased. The price-adjusted balance of trade in goods now supports a near-neutral trade impact on Q4 GDP, which is an improvement from the small drag that was incorporated as part of the first estimate of Q4 GDP. The big picture on U.S. trade has not changed in recent months. Exports to Europe and Asia are flat to down on a year-to-year basis. Petroleum imports are also flat to down on a year-to-year basis. Over the long-term two trends will become stronger. U.S. energy exports will increase. Also the re-shoring movement in manufacturing will result in easing imports of manufactured products. A downside consequence of this may be slack port activity in some areas.
With the soft production numbers for Q4 and moderate hiring through the quarter, fourth quarter productivity took a dive, down 2.0 percent on an annualized basis. Nonfarm business output is estimated to have grown by just 0.1 percent annualized in Q4, likely held back by Hurricane Sandy. It is not unusual to see a negative productivity report in any given quarter. We will see a bounce back in 2013Q1. Mirroring the drop in Q4 productivity, Q4 unit labor costs climbed at a 4.5 percent annual rate. This is not an ominous trend as wage gains remain well in check. Initial claims for unemployment insurance fell by 5,000 for the week ending February 2, to hit 366,000. It looks like initial claims are stabilizing in the range of 360,000 to 370,000 after dropping noticeably in mid-January. If the trend continues it would be consistent with ongoing moderate job growth through February.
Market Reaction: U.S. equity prices are up. Treasury yields are up at the long end of the yield curve. NYMEX crude oil is up to $96.38/barrel. The dollar is up against the euro and down against the yen.
Click here for a PDF version of the Comerica Economic Alert: Int Trade 020813.