US economy set for lift after slow start to 2015

Chris Papadopoullos
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Economic growth under Obama has been worse than thought, but will likely recover soon
An expansion in the US trade deficit suggests that economic growth is likely to have been negative at the start of the year, when second estimates are released at the end of May.

The first official estimate last week showed that the US economy slowed to near-stagnation in the first three months of the year. However, new business surveys suggest the stall in growth is likely to be temporary.

The March trade deficit – the amount the US imports over what it exports – climbed to $51.4bn, its largest since 2008, according to figures released yesterday by the Commerce Department.

According to Deutsche Bank chief US economist Joseph LaVorgna, the growth in the deficit is predominantly down to the recently resolved West Coast port slowdown and, to a lesser extent, the strength of the dollar making exports more costly.

“The gyrations in the trade figures have been so large over the last two months, the port issues surely had to have been a factor,” LaVorgna said.

Other indicators suggest the economy is unlikely to have slowed for long.

The Institute for Supply Managements said yesterday that its non-manufacturing purchasing managers’ index (PMI) – a survey of private sector firms – climbed to a five-month high of 57.8 in April. Figures above 50 point to growth, with higher numbers marking faster growth.

“Accordingly, there is little reason to believe that the potential contraction in first-quarter GDP is the start of a serious downturn in the US economy,” said Paul Ashworth, chief US economist at Capital Economics.

A separate PMI from information provider Markit pointed to strong growth in the service sector in April.

The final Markit US services business activity index registered a score of 57.4 in April, down from 59.2 in March, but still the second-highest reading since September.

“Robust service-sector growth adds to evidence that the economy is far from stalling, as indicated by the GDP numbers seen at the start of the year,” said Markit’s chief economist Chris Williamson.

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