Smaller Trade Gap Puts U.S. on Stronger Growth Path: Economy

The smallest trade deficit of the year in November and increased company hiring last month provided hints the U.S. economy is rising above a global slowdown -- a notion that will be tested in two days by new readings on job creation and unemployment.

The trade gap, or the difference in the value of imports and exports, shrank 7.7 percent to $39 billion, the smallest since December 2013, Commerce Department figures showed today in Washington. Private employment increased by 241,000 in December after a 227,000 gain the prior month, according to data from Roseland, New Jersey-based ADP Research Institute.

A plunge in oil prices and rising U.S. fuel production are helping trim imports, swamping record American demand for foreign-made consumer goods while sales overseas slacken. Economists at Barclays Plc and Morgan Stanley were among those raising fourth-quarter U.S. gross domestic product forecasts as a result.

“Growth right now is just really strong, and the U.S. is on pretty solid footing,” said Michael Gapen, the New York-based chief U.S. economist at Barclays, who raised the tracking estimate for the quarter’s GDP to a 3.5 percent annualized rate after the trade report from 2.7 percent.

The Standard & Poor’s 500 Index rallied the most in three weeks, halting a five-day selloff, as the data stoked optimism on the economy. The S&P 500 climbed 1.2 percent to 2,025.9 at the close in New York.

The median forecast in a Bloomberg survey of 69 economists projected a November trade gap of $42 billion. Estimates ranged from deficits of $39 billion to $43.9 billion.

Last Year

The deficit in 2013 narrowed 11.4 percent to $476.4 billion, the smallest since 2009. Leading up to the last recession, the shortfall reached a record $761.7 billion in 2006.

Imports dropped 2.2 percent in November, the most since June 2013, to $235.4 billion. The U.S. imported $23.1 billion worth of petroleum, the least since August 2009. The 189 million barrels of foreign crude oil purchased were the fewest since February 1994, and the $82.95 average price per barrel was the lowest since December 2010.

“When consumption’s strong, you’d expect imports to be higher, even when oil is falling,” Gapen said. “Over time, you’d think a stronger dollar and stronger private consumption in the U.S. should lead to more of a deterioration in the non-petroleum trade balance than we’ve been seeing.”

Jobs Report

Employment gains are helping sustain household purchases, The Labor Department will publish its monthly jobs count in two days. A Bloomberg survey of economists projects a 240,000 increase in total payrolls, which would bring to almost 3 million the number of positions added last year, the most since 1999. The jobless rate is forecast to fall to 5.7 percent, the lowest since June 2008, from 5.8 percent.

Slower foreign demand is also holding back orders for U.S. products, today’s trade report showed. Exports declined 1 percent to $196.4 billion from $198.3 billion in October.

Excluding petroleum, the trade gap would have been little changed in November, at $27.6 billion compared with $27 billion the prior month.

After eliminating the influence of prices, which generates the numbers used to calculate GDP, the trade deficit narrowed to $47.8 billion compared with $50.1 billion in October.

Fourth Quarter

Economists at Morgan Stanley raised their fourth-quarter GDP tracking estimate to a 2.7 percent annualized rate from 2.2 percent after today’s report.

A narrowing of the trade deficit in the three months ended in September added 0.8 percentage point to growth, the category’s biggest contribution in three quarters. GDP advanced at a 5 percent annual rate in the third quarter, the strongest gain in 11 years.

Similar contributions to GDP will be difficult to match in subsequent quarters as faster growth in the U.S. and slower demand among trading partners boosts imports and slows exports.

At the same time, companies including Dearborn, Michigan-based Ford Motor Co. are betting a slowing in exports amid waning global demand won’t spoil a U.S. trend of 3 percent growth or better this year.

“While the strong dollar does have the potential to put some damper on that, I don’t think it’s going to be a significant factor in terms of offsetting the other positive forces that are supporting overall economic growth this year,” Chief Economist Emily Kolinski Morris said on a Jan. 5 conference call, citing cheaper fuel and job gains among the factors boosting demand.

Gasoline Prices

Lower prices at the pump have been cushioning consumers’ balance sheets since September. The average cost of a gallon of regular gasoline was $2.19 yesterday, the cheapest since May 2009, according to data from motoring group AAA.

Today’s ADP figures showed private employment rose by 23,000 at construction companies, 26,000 at factories and 194,000 at service producers,

“The job market continues to power forward,” Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said in a statement. Moody’s produces the figures with ADP. “Businesses across all industries and sizes are adding to payrolls.”

Federal Reserve policy makers last month noted the improvement in the job market that’s underpinning growth in the sixth year of the U.S. expansion even as global markets weaken.

FOMC Minutes

Minutes of the Fed’s Dec. 16-17 meeting showed today that being “patient” on interest rates means no increase before late April, while expressing concern that inflation may keep lingering below its goal.

In Europe, central bankers are facing the threat of deflation. Consumer prices in the euro area fell 0.2 percent in the 12 months through December, the first decline since 2009.

A separate report showed unemployment in the region remained at 11.5 percent in November. Joblessness in Italy rose to a record 13.4 percent. German unemployment, calculated under a national measure, fell to 6.5 percent in December, the lowest in more than two decades.

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