The Week in Review: Trade Deficit Climbs, Employment Gains

The U.S. has a larger trade deficit with the rest of the world, but employment gains indicate strength in services is supporting the broader economy.

The Bureau of Economic Analysis announced Thursday that the United States has a trade deficit of $46.6 billion as of December 2014, up 17% from the prior month.

The U.S. has a larger trade deficit with the rest of the world, but employment gains indicate strength in services is supporting the broader economy.

The Bureau of Economic Analysis announced Thursday that the United States has a trade deficit of $46.6 billion as of December 2014, up 17% from the prior month.

Exports Down

The sharp rise in the deficit is surprising in light of a fall in oil imports, which usually drives the U.S. trade deficit. Even though crude oil saw the largest increase in imports on a month-over-month basis, it was down 9.6% on a year-over-year basis.  Imports of crude oil rose $1.1 billion and other petroleum product imports rose $0.5 billion.

Exports of goods fell 1.9% from November, and were down 2.7% on a year-over-year basis as of December. The decline was most notable in industrial supplies and materials exports, which fell 7.3% month-over-month and 0.5% on a year-over-year basis.

Many analysts have warned that the United States, which has grown increasingly dependent on selling to foreign markets, remains exposed to low commodity prices.  Lower commodity prices are causing a slowdown of economic growth in U.S. export targets like emerging markets.

The rise in the deficit from a fall in exports is worrying economists, who saw the most recent estimate of U.S. GDP come in below expectations. The Commerce Department noted the nation’s GDP rose just 2.6% in the fourth quarter, shortly after many investment bank economists had upgraded their prediction for fourth quarter GDP. The hypothesis that falling oil prices would encourage more aggressive consumer spending was largely behind the upgrade.

Employment Gains

A number of different reports signaled strength in the U.S. labor market, culminating in a Department of Labor report Thursday that showed jobless claims rose less than expected, to 278,000 total claims for the week ending January 31. The four-week moving average remains below 300,000, at 292,750. Investors cheered the news, as U.S. equities rose in early morning trading on Thursday.

A separate report from ADP, a private payrolls firm, showed that the private sector saw 213,000 jobs added in January. While this was slightly below expectations of 220,000 jobs, it is a sign that the economy is still expanding and helping employers justify increasing the headcount on their payrolls.

Additionally, a study from the Institute of Supply Management this week noted that six industries are seeing higher employment. Seven industries saw employment decline. The ISM non-manufacturing PMI rose to 56.7 in its latest reading, 0.2 points higher than expected, which many economists interpret as a sign that aggregate demand is continuing to rise, which could embolden employers to hire more workers in the future.