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Jobless claims, trade deficit decline
Dow, S&P 500 rise in reaction
The nation's economic outlook improved Thursday as the government reported big drops in the nation's trade deficit in July and a large decline in claims for unemployment benefits last week.
Investors were particularly focused on the jobs outlook, as weak growth in employment and incomes has stymied hopes for more vigorous growth in the economy. A recent trend of declining joblessness continued last week as the Labor Department said jobless claims fell by 27,000 to 451,000 - far more than the 2,000 decline economists expected. A four-week moving average of jobless claims fell to 477,750 from 487,000.
The Dow Jones Industrial Average shot up on the news, and the major U.S. stock indexes finished in positive territory for the day. The Dow Jones industrial average rose 28.23, or 0.3 percent, to close at 10,415.24, and the Standard & Poor's 500 index rose 5.31, or 0.5 percent, to 1,104.18.
In another upbeat development, the nation's trade deficit plunged 14 percent to $42.8 billion in July, as exports of airplanes surged and imports fell across the board, the Commerce Department reported. A big increase in the trade deficit had been a major drag on growth in the spring quarter, so the improvement in the trade deficit is a good portent for the soon-to-be-released numbers on economic growth in the summer quarter.
"The swing in net exports should stabilize growth" in the summer quarter, said Harm Bandholz, economist at Unicredit Markets. He estimated that in the April-June quarter, a big jump in imports shaved 3.4 percentage points off the U.S. rate of growth, depressing it to under 2 percent as demand for goods and services was satisfied in large part by imports from overseas.
But that surge in imports is now over, giving a boost of as much as a half a percentage point to the summer growth rate, he said.
The unusually large 3 percent jump in imports in both May and June was mostly a result of tax rebates the Chinese government provided to exporters during those months, prompting a scramble by Chinese exporters to take advantage of them, Mr. Bandholz said. The rebates expired in mid-July, so they should no longer distort the trade data, he said.
Also helping narrow the trade deficit, U.S. exports resumed their upward trend in July, growing by 1.8 percent. A declining dollar and robust growth in emerging markets such as China and Brazil have provided a powerful boost to exports of big-ticket equipment like tractors and airplanes in the last year.
The jobless claims numbers also heartened economists.
"Given the flood of soft economic data that we've seen in recent months, the continued improvement in jobless claims is encouraging, as it reinforces the reversal of the negative trend that had been in place," said Jim Baird, a partner at Plante Moran Financial Advisors in Kalamazoo, Mich.
"However, we shouldn't lose sight of the fact that the labor market is still exceptionally weak."
A Labor Department official said the department had to estimate claims data for some states that had been unable to submit data owing to Monday's Labor Day holiday.
Some have since submitted their data, and the official said the figures were close to the department's estimates, indicating the data was unlikely to be revised significantly.
c This article was based in part on wire service reports.
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