Trade Deficit Widens to 2-Year High; 1Q Productivity Weakens

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Trade Gap
Patrick Semansky/AP
By Lucia Mutikani

WASHINGTON -- The U.S. trade deficit widened to its highest level in two years in April as imports hit a record high, suggesting trade could be a drag on second-quarter growth.

The Commerce Department said the trade gap increased 6.9 percent to $47.2 billion as imports hit a record high. It was the largest deficit since April 2012 and followed a $44.2 billion shortfall in March.

%VIRTUAL-article-sponsoredlinks%When adjusted for inflation, the deficit increased to $53.8 billion from $50.9 billion in March.

U.S. stock index future were trading lower, while prices for U.S. Treasury debt prices rose.

Trade subtracted almost a percentage point from first-quarter gross domestic product. The economy contracted at a 1 percent annual pace in the first three months of the year.

While there are signs that growth has since rebounded this quarter, gross domestic product growth probably won't top the 3.5 percent rate that economists are anticipating.

Imports increased 1.2 percent to an all-time high of $240.6 billion in April. Imports of automobiles, capital goods, food and consumer goods all hit record highs in April.

The rise in capital goods could pointing to a pick-up in inventory accumulation by businesses, which could boost growth.

The trade deficit with the European Union was the largest on record, as was the gap with Germany.

Imports from South Korea also touched a record high, while Chinese imports rose 16.3 percent.

That pushed up the politically sensitive trade gap with China to $27.3 billion from $20.4 billion in March.

Exports slipped 0.2 percent to $193.3 billion.

Worker Productivity Slips

Separately, the Labor Department said nonfarm productivity fell at its sharpest pace in six years in the first quarter as harsh winter weather depressed output, leading to a jump in labor-related production costs.

The government revised productivity data to show it tumbling at a 3.2 percent annual rate. That was the biggest drop since the first quarter of 2008. It had initially been reported falling at a 1.7 percent rate.

Workers put in more hours in the first quarter but with output falling, that raised labor costs. Unit labor costs, the price of labor per single unit of output, surged at a revised 5.7 percent rate.

It was the biggest rise in unit labor costs since the fourth quarter of 2012. Unit labor costs were previously reported to have increased at a 4.2 percent rate. They fell at a 0.6 percent rate in the fourth quarter.

Despite the jump last quarter, there was little sign that wage inflation was igniting. Unit labor costs rose by a revised 1.2 percent compared to the first quarter of 2013.

They had previously been reported to have increased at a 0.9 percent rate.

Trade Deficit Widens to 2-Year High; 1Q Productivity Weakens
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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