Goods Trade Gap Narrows, Few Layoffs: U.S. Economic Takeaways

  • Smaller merchandise deficit leads some to revise GDP estimates
  • Fewer Americans than forecast file for jobless benefits

What you need to know about Thursday’s U.S. economic data:

ADVANCE MERCHANDISE TRADE DEFICIT (AUGUST)

  • Shrank 0.6 percent to four-month low of $58.4 billion (forecast was $62.2 billion) from $58.8 billion
  • Exports of merchandise climbed 0.7 percent on pickup in shipments of industrial supplies, automobiles and consumer goods
  • Imports rose 0.3 percent on capital equipment, vehicles and foods

The Takeaway: Expect a sizable contribution to third-quarter economic growth from net exports. Economists at Morgan Stanley and Amherst Pierpont Securities boosted their tracking estimates for GDP to 3.7 percent. Interestingly, American companies imported more capital equipment and fewer consumer goods. That may be an early sign that business investment is beginning to thaw just as households become slightly more conservative with their money after spending in the second quarter at the fastest clip since 2014.

JOBLESS CLAIMS (WEEK ENDED SEPT. 24)

  • Crept up to 254,000 (forecast was for 260,000)
  • Previous week revised to a five-month low of 251,000 from 252,000
  • Continuing claims dropped to 2.06 million, the lowest since mid-2000
  • Benefit rolls have shrunk by 87,000 in the latest two weeks, the biggest back-to-back decline since December 2013

The Takeaway: Resilience. The figures are a staccato of good news from the labor market. Layoffs are as low as they have been in a long time, with the number of people applying for unemployment benefits holding below 300,000 for 82 straight weeks. What’s more, benefit rolls are shrinking. The "decline in continuing claims in recent weeks is consistent with the unemployment rate resuming its downtrend," Jim O’Sullivan at High Frequency Economics Ltd. wrote in a note to clients.

PENDING HOME SALES (AUGUST)

  • Fell 2.4 percent (forecast was for no change) after revised 1.2 percent increase in July
  • Index decreased to seasonally adjusted 108.5, weakest since January
  • Contract signings rose 4 percent from August 2015 on unadjusted basis

The Takeaway: Contract signings have declined in three of the last four months as the relative paucity of available homes holds buyers at bay. Lawrence Yun, NAR’s chief economist, said inventory shortages are causing home prices to rise and causing would-be home buyers to step away from the market. Combined with a drop in home construction last month, housing will probably contribute little to economic growth.

GROSS DOMESTIC PRODUCT (2Q FINAL)

  • Rose annualized 1.4 percent (forecast was 1.3 percent) after previous 1.1 percent
  • Consumer spending climbed 4.3 percent; prior estimate was 4.4 percent
  • Revision reflects smaller drop in business investment in structures, higher farm inventories and more exports
  • Nonresidential fixed investment posted 1 percent advance compared with prior estimate of 0.9 percent drop 
  • Gross domestic income revised to a 0.2 percent decrease rather than previously estimated 0.2 percent gain 

The Takeaway: The most prominent change in the latest GDP print was a less-bleak reading on capital spending on equipment and business spending on structures, such as office buildings and factories. The overall picture is pretty much the same, with household purchases driving growth while investment remains tepid. Overseas sales offered slightly more support than previously estimated, and advance goods trade data for the past two months (see above) signals the improvement carried over into this quarter. Among the weak spots, corporate profits compared with a year ago were still down for the fifth straight quarter, and GDI -- all the money earned by consumers, businesses and government agencies -- swung to a decline because of a downward revision to state tax receipts.

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