U.S. Trade Deficit Narrows, Unemployment Claims Drop

The U.S. trade deficit narrowed more than forecast in July and filings for jobless benefits plunged last week, tempering concern the world’s largest economy is slipping back into a recession.

The trade gap shrank 14 percent, the most since February 2009, to $42.8 billion, the Commerce Department said today in Washington. The deficit was less than the lowest forecast in a Bloomberg News survey of economists. New applications for unemployment insurance fell by 27,000 to 451,000, the lowest since July 9, according to the Labor Department.

Stocks climbed and Treasury securities fell as the reports underscored the Federal Reserve’s view that while the economy has cooled, it will avoid contraction. U.S. exports rose to a two-year high, a source of strength for manufacturing, which has been a mainstay for the recovery.

“While the data haven’t exactly been robust, they’ve certainly been healthy enough to suggest that we’re not on the cusp of a double dip,” or a renewed recession, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “We’re not firing on all cylinders anymore, but manufacturing is definitely still growing.”

Morgan Stanley economists David Greenlaw and Ted Wieseman raised their forecast for third-quarter economic growth to 2.4 percent from 2.1 percent after the trade figures.

Economists’ Forecasts

Overseas shipments increased 1.8 percent to $153.3 billion, the highest since August 2008, while purchases from abroad declined 2.1 percent. Economists projected a deficit of $47 billion, according to the median of 73 estimates in the Bloomberg survey. Forecasts ranged from $43 billion to $52 billion.

The Standard & Poor’s 500 Index gained 0.9 percent to 1,108.73 at 11:26 a.m. in New York. The yield on the 10-year Treasury note rose to 2.73 percent from 2.66 percent late yesterday.

Initial jobless claims were forecast to decline to 470,000, and projections ranged from 460,000 to 482,000, according to the Bloomberg survey.

Nine states didn’t file claims data with the Labor Department in Washington because of the Labor Day holiday, a department official told reporters as the figures were released. California and Virginia estimated their claims, and the U.S. government estimated the other seven.

‘Modestly Encouraging’

“The report is modestly encouraging as claims have reversed the sharp uptick observed in previous weeks, but the Labor Day holiday means we need to see the revisions next week before coming to any firmer conclusions,” Michael Gapen, a senior U.S. economist at Barclays Capital, said in a note to clients.

The four-week average, a less volatile measure than the weekly figures, declined to 477,750 last week from 487,000.

Caterpillar Inc., based in Peoria, Illinois, said last month it may add as many as 9,000 workers worldwide this year as sales climb in developing markets. The world’s largest construction equipment maker said about 1,250 of the jobs the company has added so far have been in the U.S.

The outlook for U.S. exports is holding up as emerging economies expand. A report last week showed manufacturing in China grew at a faster pace in August. The gain in the government-backed purchasing managers’ index signaled the economy in China is stabilizing after a slowdown.

U.S. exports of industrial supplies, civilian aircraft, machinery and computers increased in July, while imports of business equipment and consumer goods fell, today’s report showed.

‘Uneven Recovery’

“What I see is an uneven recovery,” Bob McDonald, chief executive officer of Procter & Gamble Co., the world’s largest household-products maker, said in a Sept. 3 interview with Bloomberg Television. “What I see when I look at our consumer data is the U.S. economy is improving, the global economy is improving, and what we’d like to do is accelerate the rate of growth.”

The July trade balance adjusted for inflation, the figure used to calculate gross domestic product, decreased to $47.7 billion from $53.6 billion in June. The gap compares with the average $47.9 billion a month in the second quarter.

Trade subtracted 3.37 percentage points from growth in April through June, the most since record-keeping began in 1947. The Commerce Department on Aug. 27 lowered its estimate for second-quarter growth to a 1.6 percent annual rate from the previously projected 2.4 percent. A final estimate for the quarter will be released Sept. 30.

Weaker Dollar

Shipments abroad may get a lift from a weaker dollar. The yen yesterday touched 83.35 against the dollar, the strongest since May 1995. The dollar has declined almost 4 percent against a trade-weighted basket of currencies since a high this year on May 20 through yesterday.

Treasury Secretary Timothy F. Geithner, in an interview yesterday with Bloomberg Television, said that China should move faster to loosen restrictions on its currency.

“It’s important for China to let the market play a greater role in setting the exchange rate,” Geithner said. “We’d like to see them move more quickly.”

July imports from China were the highest since October 2008, today’s report showed. The U.S. deficit with China narrowed to $25.9 billion in July from $26.2 billion.

Public opinion polls show jobs and the economy are top concerns among voters two months before November congressional elections in which the Democrats are at risk of losing their majorities in the House of Representatives and the Senate.

President Barack Obama’s approval ratings have slipped, and support for the Republican Party has grown amid signs the economy was cooling.

Obama wants Congress to extend middle-income tax cuts, while letting the top tax rates rise. He has endorsed only an extension of tax cuts for those earning less than $200,000 per individual or $250,000 per couple.

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

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