The 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 are 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 87 points to 10,474 on the news at the opening of trade Thursday morning.
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 was a major drag on growth in the spring quarter, so the improvement in the trade deficit is a good portent for growth this summer.
"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 percentage point to the summer growth rate, he said.
The unusually large 3 percent jump in imports in both May and June was mostly due to 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 long upward trend in July, growing by 1.8 percent. A declining dollar and robust growth in emerging countries like China and Brazil have provided a powerful boost to exports of big-ticket equipment like tractors and airplanes in the last year.
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