Trade Expected to Drag on Q1 GDP, Service Sector and Labor Data Positive
- The ISM Non-Manufacturing Index for March increased to 54.5 percent.
- The U.S. International Trade Gap widened in February to -$47.1 billion.
- The JOLTS Report for February showed an increase in the hiring rate to a strong 3.8 percent.
This morning’s U.S. economic data releases show more of the same for the U.S. economy: a healthy service sector, trade headwinds and a strong labor market. The ISM Non-Manufacturing Index for March increased to 54.5 percent, from February’s 53.4 percent. The improvement in the index is consistent with our expectation for weak-to-moderate real GDP growth, in the vicinity of 1.3 percent annualized, for the recently completed first quarter. Nine of the 10 sub-indexes for the NMF index were above 50, indicating improving conditions, while only the prices sub-index was contracting at 49.1. Twelve industries reported growth in March and only two report contraction – arts/entertainment/recreation and transportation/warehousing. Anecdotal comments were mixed even though most businesses reported improving conditions.
The U.S. international trade gap widened in February to -$47.1 billion as imports increased more than exports for the month. Total imports gained $3.0 billion while exports gained $1.8 billion. For the year ending in February, nominal imports are slightly up, by just 0.3 percent. Nominal exports are down by 4.2 percent. Energy prices figure prominently in the nominal calculations. The real (price adjusted) balance of trade in goods for February widened by $1.6 billion ($2009) to -$63.3 billion. The January/February average for the real balance of trade in goods is wider than the 2015Q4 average, implying a drag from trade in the 2016Q1 GDP report, which will be released on April 28. On a trade-weighted basis the U.S. dollar remains strong while global demand growth is soft. Both factors are weighing on U.S. export growth, thus widening the trade gap.
The Job Opening and labor Turnover Survey (JOLTS) for February showed an increase in the hiring rate while the job opening rate ticked down. Hiring was strong at 3.8 percent of total employment. The job openings rate ticked down to a still-strong 3.7 percent. The quits rate increased to 2.1 percent, also a strong number.
Market Reaction: U.S. equity markets opened with losses. The 10-year Treasury bond yield is down to 1.73 percent. NYMEX crude oil is down to $35.60/barrel. Natural gas futures are down to $1.96/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Int Trade 04-05-16.