US trade deficit widens from 3-year low
Productivity up 3.1% in third quarter
The US trade deficit climbed in October from its lowest monthly level in nearly three years. Imports of consumer goods such as medicine, cell phones and clothing increased, while exports of soybeans, gold and artwork tumbled which fueled the monthly widening of the trade gap.
The Commerce Department said yesterday that the deficit rose to $42.6 billion in October, up 17.8 percent from September. The $36.2 billion trade deficit in September was the lowest since December 2013.
Reducing the trade deficit has become a primary focus of President-elect Donald Trump. Trump cites the trade imbalance as evidence that the United States has to signed misguided trade agreements that have hurt US economic growth and cost jobs. In the wake of an agreement last week to keep 800 jobs at the Carrier furnace factory in Indianapolis from going to Mexico, Trump has promised to lower corporate tax rates to preserve factory jobs inside the United States, while threatening harsh penalties for companies that produce goods overseas to save on labor costs. On Twitter, Trump warned that he will impose a 35 percent tariff on the goods imported by companies that outsource production.
So far this year, the trade deficit is running 2.1 percent below its 2015 levels. The United States has been exporting more food but fewer industrial supplies, oilfield equipment, autos and consumer goods. But the country has also cut back on imports of steel, oil, aircraft, computer accessories and televisions, among other goods, leading to a narrowing of the overall trade deficit.
A larger trade deficit acts as a drag on growth because it means America is buying more from foreign countries than it is selling. But the pace of exports picked up during the July-September quarter, contributing a solid 1.2 percentage points to annualized growth of 3.2 percent during the quarter. The goods trade deficit with China contracted to $31.1 billion in October and is running 6.2 percent below last year’s level, although it remains the leading contributor to America’s trade gap. The deficit with the European Union rose 29.2 percent to $13.1 billion. The imbalance with Mexico climbed 18.1 percent to $6.2 billion.
The productivity of American workers rose in the JulySeptember quarter at the fastest pace in two years while labor costs slowed after a big jump in the spring. Productivity increased in the third quarter at a 3.1 percent rate, the Labor Department reported yesterday. That followed three quarterly declines and was the best showing since a 4.2 percent increase in the third quarter of 2014. Labor costs edged up at a 0.7 percent rate in the third quarter following a much faster 6.2 percent jump in the second quarter. The productivity figure was unchanged from an initial estimate a month ago while the 0.7 percent rise in unit labor costs was slightly higher than an initial estimate of a 0.3 percent gain.
The rebound in productivity was expected to be temporary. Economists believe the jump in productivity in the summer will be short-lived. They are forecasting that productivity will return to the anemic gains seen over the past nine years. Since 2007, annual productivity increases have averaged just 1.3 percent. That is just have the 2.6 percent average gains turned in from 2000 through 2007 when the country was benefiting from the increased efficiency from greater integration of computers and the internet into the workplace. Productivity, the amount of output per hour of work, is the key factor that supports rising living standards. Rising productivity means increased output which allows employers to boost wages without triggering higher inflation. The revised estimates for productivity and output follow the government’s revisions to the gross domestic product, the economy’s total output of goods and services, last week. The revision boosted GDP growth in the third quarter to 3.2 percent, up from an initial estimate of 2.9 percent.
Productivity growth has been weak since the Great Recession. The 1.3 percent average gain from 2007 through 2015 compares to 2.6 percent from 2000 to 2007 and a 2.2 percent average from 1947 through 2015. Federal Reserve Chair Janet Yellen has pointed to the slowdown in productivity growth as a key challenge facing the country.
Economists believe that businesses need to start focusing more on raising the efficiency of their existing workforce rather than just hiring more workers to meet demand. Analysts expect companies to put more emphasis on increasing productivity as the labor market hits full employment and the pool of available qualified workers diminishes. — AP