US data calms growth fears

City A.M. Reporter
NEW US claims for unemployment benefits fell more than expected last week to a two-month low, while the trade deficit narrowed sharply in July, hopeful signs for the stuttering economic recovery.

The data yesterday helped to calm fears of a sharp slowdown in growth and implied the economy could start working its way out of a soft patch.

“The economy is not out of the woods with today’s data, but things look better than they have in several weeks and there is no danger of a new downturn in activity,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Initial claims for state unemployment benefits dropped 27,000 to 451,000, the lowest since the week ended 10 July, the Labor Department said. That was well below financial market expectations for 470,000.

Separately, the trade deficit shrank 14 per cent to $42.8bn in July, smaller than the $47.3bn gap that markets had expected. Analysts said that suggested the pace of economic growth would quicken in the third quarter.

The shrinking of the trade deficit was welcome news after a widening trade gap sliced nearly 3.4 percentage points off US economic growth in the second quarter.

A widening trade deficit weighs on growth because it shows more domestic demand is being met by overseas production.

The smaller trade gap reflected a 1.8 per cent increase in exports to $153.3bn, the highest since August 2008. Imports fell 2.1 per cent to $196.1bn.

However imports from both China and Germany – two countries with persistent trade surpluses – were the highest since October 2008.