Trade Deficit Narrows as Services Exports Hit Record High

Trade Gap
Stephen B. Morton/AP

By Richard Leong

NEW YORK -- The U.S. trade deficit narrowed in April on a drop in imports, which surged in March following the end of a West Coast ports labor dispute, while companies picked up their hiring in May after a pullback the previous month.

The data supported the notion the U.S. economy has recovered somewhat from a first-quarter contraction and bolstered expectations the Federal Reserve may consider raising interest rates later this year.

%VIRTUAL-WSSCourseInline-876%Economists cautioned that a second-quarter economic rebound remains modest due to a strong dollar, a recent rise in oil costs and sluggish demand abroad.

"The takeaway for now is that the massive drag from trade activity is beginning to unwind, though this sector is likely to remain a modest drag on activity this quarter on account of the strong dollar, higher energy prices and weak global demand," said Millan Mulraine, deputy head of U.S. strategy at TD Securities.

The Commerce Department said Wednesday the trade gap narrowed to $40.9 billion from March's revised deficit of $50.6 billion. The March deficit was previously reported at $51.4 billion.

The 19.2 percent drop in the April trade deficit was the largest decrease since early 2009.

Analysts polled by Reuters had forecast the trade deficit falling to $44 billion.

Imports fell 3.3 percent to $230.8 billion as West Coast ports, a key entry point for goods to and from Asia, cleared a backlog created by a labor dispute that was settled earlier this year.

Exports increased 1 percent to $189.9 billion in April. A stronger U.S. dollar has in recent months made U.S. goods and services less affordable abroad.

Exports of U.S. services edged up to $60.9 billion, the highest ever recorded.

The April petroleum deficit stood at $6.8 billion, the lowest since March 2002.

Improved Hiring

Meanwhile, private employers added 201,000 jobs in May, the most since January, payrolls processor ADP said Wednesday.

That was in line with analyst forecasts and higher than a revised 165,000 jobs in April, which were the fewest since January 2014.

U.S. stock indexes were trading higher after the data, while prices for U.S. Treasuries fell. The dollar was weaker against a basket of currencies.

The ADP data came ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report Friday, which includes both public and private-sector employment.

Economists polled by Reuters are looking for total U.S. employment to have grown by 225,000 jobs in May, largely in line with April's 223,000 increase. The unemployment rate is seen holding at a near seven-year low of 5.4 percent.

-With additional reporting by Elvina Nawaguna in Washington.