December International Trade, Q4 Productivity, Jan. UI Claims

Trade Data Points to Downward Revision in Q4 GDP

  • The U.S. International Trade Gap widened to -$38.7 billion in December, weighing on Q4 GDP.
  • Nonfarm Productivity increased at a 3.2 percent annual rate in 2013Q4. Unit Labor costs went down.
  • Initial Claims for Unemployment Insurance fell by 20,000 for the week ending February 1, to hit 331,000.

The U.S. international trade gap widened more than expected to -$38.7 billion in December. On a month-to-month basis trade data is noisy, so we are not altering our view that the energy boom in the U.S. will have (already is having) a fundamentally positive long-term impact on the balance of trade. Bad weather will be a factor this winter, restricting dock activity and land transport. Exports declined by -$3.5 billion and imports increased by $0.6 billion in December. The wider-than-expected trade gap for December implies a negative revision to 2013Q4 GDP. If all other GDP components remain the same, Q4 GDP annualized growth will be revised down from 3.2 percent, by about 0.4 percent, to 2.8 percent.  

Productivity growth in the second half of 2013 was strong. Today’s report from the BLS shows that nonfarm productivity increased at a 3.2 percent annual rate in Q4, after growing by 3.6 percent in Q3.  We like to see productivity increase because that means that real wages can increase without being inflationary. Also, the flip side of productivity, unit labor costs, remains in check when productivity increases. Unit labor costs declined at a 1.6 percent annual rate in Q4, supportive of corporate profit growth. Now comes the other part. There is no direct measure of productivity. It is an imputed number based on output and labor metrics. One of the reasons why productivity was strong in 2013H2 was that GDP growth was strong. The strong 2013H2 GDP growth, in turn, was aided by a surge in inventories.  Long story short…we will likely see slower productivity growth in coming quarters as inventory accumulation normalizes.

Initial claims for unemployment insurance decreased by 20,000 for the week ending February 1, hitting a level of 331,000. There is no clear up or down trend in initial claims through the end of last year. This highlights a disconnect between the claims data and the weak payroll employment gains in December (+74,000). We expect to see a correction in the payroll data in coming months. Bear in mind that January weather was awful in much of the country, so we may not see much of a correction in the January payroll jobs numbers, due out tomorrow morning. Continuing claims increased by 15,000 for the week ending January 25, to a level of 2,964,000. The odds of a now retro-active extension of extended UI benefits appear to be receding. We expect to see a declining trend in the continuing claims numbers as a result of the termination of extended benefits. On a related note, the new farm bill passed by the House and Senate awaits President Obama’s signature. The bill contains an $8 billion reduction in food stamps over the next decade. We are well into the unwind of the extraordinary fiscal and monetary policy measures necessitated by the Great Recession.

We had the honor last night of attending the premier of the new documentary film “Hank: 5 Years from the Brink,” which documents former Treasury Secretary Hank Paulson’s role in stemming the financial crisis.  See it if you can.

Market Reaction: U.S. equity prices are up. The 10-year Treasury yield is up to 2.70. NYMEX crude oil is up to $98.28/barrel. Natural gas futures are down to $5.02/mmBTU.

For a PDF version of this Comerica Economic Alert click here: Int Trade 020614.

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