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

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.