US trade deficit widens from 3-year low

Pro­duc­tiv­ity up 3.1% in third quar­ter

Kuwait Times - - BUSINESS -

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

OAK­LAND: A sail­boat makes its way past the con­tainer ship MSC Ivana as she is un­loaded at the Port of Oak­land in Oak­land, Cal­i­for­nia. The Com­merce Depart­ment re­ported on the US trade gap for Oc­to­ber yes­ter­day. — AP

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