WASHINGTON: The U.S. trade deficit unexpectedly narrowed in April as imports of goods dropped to a 15-month low, which could support the economy as it slows after a temporary boost from exports and an accumulation of inventories early this year.
Other data on Thursday showed the number of Americans filing applications for unemployment benefits was unchanged, suggesting the labor market remains resilient despite the moderation in economic activity.
The Commerce Department said the trade deficit fell 2.1per cent to US$50.8 billion in April. Data for March was revised up to show the trade gap increasing to US$51.9 billion instead of the previously reported US$50.0 billion. The government revised trade data from 2014. Economists polled by Reuters had forecast the trade gap would widen to US$50.7 billion in April.
The goods trade deficit with China, a focus of President Donald Trump's "America First" agenda, increased 29.7per cent to US$26.9 billion. Trump in early May escalated the trade fight with China, slapping additional tariffs of up to 25per cent on US$200 billion of Chinese goods, which prompted retaliation by Beijing.
While Washington has secured a trade pact with Mexico and Canada, there are fears it could be scuttled by Trump's announcement last week that he would impose a tariff on all goods from Mexico in a bid to stem the tide of illegal immigration across the U.S.-Mexican border. The tariff would start at 5per cent on June 10.
In April, goods imports fell 2.5per cent to US$208.7 billion, the lowest level since January 2018. Imports fell broadly in April. Imports of consumer goods dropped US$1.1 billion. There were also decreases in imports of motor vehicles and capital goods. Weak imports could be flagging weak domestic demand.
Goods exports dropped 3.1per cent to US$136.9 billion. The percentage decline was the largest since January 2015. Civilian aircraft exports plunged US$2.3 billion. Boeing in March suspended deliveries of its 737 MAX jet after the aircraft was grounded indefinitely following two deadly crashes in five months. Production of the troubled plane has been cut.
There were also decreases in exports of consumer goods and motor vehicles. Exports of soybeans fell in April and further declines are likely following the recent heightening of tensions between Washington and Beijing.
China, the world's biggest buyer of soybeans, has previously targeted the crop in the trade war, only relenting when trade negotiations appeared to be progressing.
When adjusted for inflation, the goods trade deficit fell to US$81.9 billion in April from US$83.00 billion in the prior month. The drop in the so-called real goods trade deficit suggested that trade could add to economic growth.
Overall, the economy is slowing in the second quarter.
Manufacturing production and home sales fell in April, while consumer spending increased moderately. The Atlanta Federal Reserve is forecasting GDP to rise at a 1.3per cent annualized rate in the April-June quarter. The government reported last month that the economy grew at a 3.1per cent pace in the first quarter, boosted by strong exports, an inventory accumulation and defense spending.
U.S. stock index futures pared gains shortly after the release of the data. U.S. Treasury yields held at lower levels while the dollar was weaker against a basket of currencies.
WEAK LABOR COSTS
In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits were unchanged at a seasonally adjusted 218,000 for the week ended June 1. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,500 to 215,000 last week.
The claims data has no bearing on May's employment report, which is scheduled for release on Friday. According to a Reuters survey of economists, nonfarm payrolls likely increased by 185,000 jobs in May after surging by 263,000 in April.
The pace of job growth is well above the roughly 100,000 needed per month to keep up with growth in the working age population. The unemployment rate is forecast to be unchanged near a 50-year low of 3.6per cent.
But the tightening labor market is not generating a lot of wage inflation. Another report from the Labor Department showed unit labor costs, the price of labor per single unit of output, dropped at a 1.6per cent annualized rate in the first quarter, instead of falling at a 0.9per cent rate as reported last month.
Data for the fourth quarter was revised to show unit labor costs falling at a 0.4per cent rate in the October-December period, rather than increasing at a 2.5per cent pace as previously reported.
Compared to the first quarter of 2018, unit labor costs fell at a rate of 0.8per cent, revised down from the 0.1per cent gain estimated last month. Weak unit labor costs mirror tepid inflation readings that have prompted calls, including from Trump, for the Federal Reserve to cut interest rates.
An improvement in worker productivity is helping to keep unit labor costs subdued despite a tightening labor market.
Productivity increased at a revised 3.4per cent rate in the first quarter. Productivity was previously reported to have accelerated at a 3.6per cent rate in the first three months of the year.
(Reporting by Lucia Mutikani; Editing by Paul Simao)