Trade Likely to Weigh on Q1 GDP, ISM Reports Supportive of March Jobs
- The U.S. International Trade Gap widened to -$42.3 billion in February, as exports eased.
- The March ISM Non-Manufacturing Index increased to 53.1, the jobs sub-index was positive.
- Initial Claims for Unemployment Insurance gained 16,000 for the week ending March 29, to hit 326,000.
The U.S. international trade gap widened more than expected to -$42.3 billion in February. It now looks like trade will be a small-to-moderate drag on real GDP growth for the recently completed first quarter. Added to an expected drag from inventories, weak federal government spending and weather-suppressed consumer spending, the first quarter is shaping up to be a clunker. We are on the low side of consensus expectations for Q1 GDP. Our March U.S. Economic Update shows an anemic 1.0 percent annualized growth rate for Q1 real GDP. We think we will see a confluence of one-off effects in the first quarter GDP numbers that do not reflect a fundamental slow-down in the U.S. economy. Imports increased by $1 billion in February while exports declined by $2 billion. On a year-over-year basis, exports to China were up 6.2 percent in February, while exports to the European Union were up 4.5 percent. The recent string of soft data from China appears to be motivating more stimulus there. According to today’s Wall Street Journal, the State Council has announced a new spending package featuring transportation and housing projects and small business tax credits.
While the expected weak Q1 GDP report is essentially backwards looking, forward-looking metrics are improving. As previously reported, the March ISM Manufacturing Index improved to 53.7. Today we see that the March ISM Non-Manufacturing Index increased to 53.1, up from February’s 51.6. Notable was the contraction in the inventories sub-index, down to 48.0. This is consistent with our expectation of a drag from inventories on Q1 GDP growth. Also notable, the employment sub-index increased from a weak 47.5 in February to an expansive 53.6 in March. We expect to see around 195,000 payroll jobs added in March when the official BLS employment report hits the street tomorrow morning at 8:30 Eastern time. Initial claims for unemployment insurance increased by 16,000 for the week ending March 29, to hit 326,000. Continuing claims notched up 22,000 to hit 2,836,000 for the week ending March 22. We expect the March unemployment rate to tick back down to 6.6 percent.
Market Reaction: U.S. equity prices are down after opening gains. The 10-year Treasury yield is down to 2.78 percent. NYMEX crude oil is up to $100.01/barrel. Natural gas futures are up to $4.45/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Int Trade 04-03-14.