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US trade gap hits 7-month high amid expanding tariff war

250,000 jobs added in October; jobless rate holds steady

Washington

THE US trade deficit widened more than forecast in September to a seven-month high as imports expanded and the merchandise gap with China hit a record amid an escalating tariff war.

The gap for goods and services increased 1.3 per cent from the prior month to US$54 billion, Commerce Department data showed Friday. The median estimate of economists surveyed by Bloomberg called for a deficit of US$53.6 billion. Imports and exports both rose 1.5 per cent.

The monthly report provides details around third-quarter data released last week that showed trade imposed the biggest drag on growth in 33 years amid tariffs on China and counter-levies by the Asian nation.

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While President Donald Trump is threatening more action, US businesses are already facing higher prices and supply-chain disruptions as they rush to buy materials and other items.

Overall exports rose to US$212.6 billion, including gains in petroleum products, gold, oil and aircraft. Imports increased to US$266.6 billion, boosted by a range of capital and commercial goods. The overall trade gap for goods increased to US$76.3 billion, also a record and in line with the preliminary figure last week.

The unadjusted merchandise trade gap with China, the world's second-biggest economy, widened to US$40.2 billion from US$38.6 billion.

American soybean exports fell 29 per cent from the prior month to US$1.79 billion, the lowest since February. That extended the unwinding of a run-up in the second quarter before Chinese retaliatory levies were imposed.

An index of US manufacturing fell by more than forecast to a six-month low in October as a measure of export orders declined to the lowest since 2016, data from the Institute for Supply Management showed on Thursday.

Gross domestic product expanded at a 3.5 per cent pace in the July-to-September period, marking the best back-to-back quarters of growth since 2014. Net exports subtracted 1.78 percentage points from GDP growth, reflecting an unwinding of the boost in the prior quarter when US exporters of soybeans and other products stepped up shipments to beat retaliatory tariffs from abroad.

The US economic engine brushed off last month's Hurricane Michael to continue its robust job creation while giving workers a fat pay bump, the government reported on Friday.

In a welcome development for Republicans ahead of next week's bitter mid-term vote, American employers added 250,000 net new positions in October, overshooting forecasts, while salaries rose at the fastest rate since 2009, the Labor Department said.

Unemployment held steady at 3.7 per cent, a 48-year low.

The result was a surprise as some economists had expected the hurricane that made landfall in Florida in the middle of the employment survey week to depress reports of hiring and worker pay.

Instead, officials said the storm, which disrupted business and life for millions, produced "no discernable effect" on estimates. Companies kept right on hiring in healthcare, manufacturing, construction, transportation and warehousing.

But perhaps more significant, average hourly earnings, a closely watched measure of worker pay, rose 0.2 per cent from September, putting wages 3.1 per cent above the year-ago level - the fastest gain since April 2009.

Sluggish worker pay gains despite the healthy jobs market had baffled economists, and the gain now is well above the 2.3 per cent pace of consumer inflation.

The transportation equipment sector added 21,000 workers, within which the key auto industry accounted for 6,800 positions.

The share of the population in the workforce also rose 0.2 to 60.6 per cent.

The Federal Reserve is not expected to raise interest rates when it meets to consider monetary policy next week, but the latest jobs report is likely solidify the case for the rate hike expected in December.

President Trump has expressed outrage at the Fed's current tightening cycle, after three hikes this year.

But with unemployment flirting with historic lows and the economy juiced by tax cuts, stimulus and steady job creation, economists say policymakers will feel they have little choice but to continue raising rates to stave off inflation and prevent the economy from overheating. BLOOMBERG, AFP