While other data on Wednesday suggested a widening trade gap could
weigh on growth in the second quarter, a jump in imports pointed to
a welcome pick-up in domestic demand.
"May job growth may have been a little less than expected but with
imports rising, it looks like the economy is moving forward
solidly," said Joel Naroff, chief economist at Naroff Economic
Advisors in Holland, Pennsylvania.
Private employers added 179,000 jobs to their payrolls last month
after hiring 215,000 workers in April, according to payrolls
Economists had expected a gain of 210,000 private sector jobs in
May. Nevertheless, many analysts said the report did not change
their expectations for the government's more comprehensive jobs data
due on Friday.
Separately, the Institute for Supply Management said its services
sector index rose to 56.3 last month from 55.2 in April as new
orders, order backlogs and hiring increased. It was the highest
reading in nine months.
Following on the heels of data on Tuesday that showed robust growth
in factory activity in May, it underscored the economy's
strengthening fundamentals. Any reading above 50 indicates an
The firming economic tone was highlighted by the Federal Reserve's
anecdotal Beige Book. Reports from the central bank's contacts
indicated activity expanded in recent weeks.
In another report, the Commerce Department said the trade gap
increased 6.9 percent to $47.2 billion in April as imports hit a
record high and exports slipped. It was the largest deficit in two
ANOTHER TRADE DRAG
U.S. stocks shrugged off the soft reading on private sector hiring
to trade mostly higher. U.S. Treasury debt prices dipped, while the
dollar rose against a basket of currencies.
When adjusted for inflation, the trade deficit increased to $53.8
billion from $50.9 billion in March, suggesting trade, which weighed
heavily on growth in the first three months of the year, will remain
a drag in the second quarter.
The government said last month the economy contracted at a 1.0
percent annual pace in the first quarter, but a revision that showed
the March trade deficit was wider than previously estimated
suggested the economy's contraction was even sharper.
[to top of second column]
But ample signs have accumulated to show activity rebounding this
quarter, although growth may fall short of the 3.5 percent rate many
economists had anticipated given the unexpectedly heavy demand for
imports in April.
Imports subtract from growth because they are produced in other
Goldman Sachs cut its second-quarter GDP growth estimate by
four-tenths of a percentage point to a 3.4 percent rate, while
Morgan Stanley slashed its forecast to a 3.5 percent rate from 4.0
percent and Barclays trimmed its estimate by one-tenth to 2.9
But the 1.2 percent increase in imports also indicated domestic
demand was bouncing back. Automobile, capital goods, food and
consumer goods imports hit record highs in April.
"Strong gains in capital and durable goods imports suggest a pick-up
in economic activity and sustained domestic demand," said Gennadiy
Goldberg, an economist at TD Securities in New York.
The trade deficit with the European Union was the largest on record,
as was the gap with the EU's biggest economy, Germany. Imports from
South Korea also touched a record high.
Chinese imports rose 16.3 percent, pushing the politically sensitive
trade gap with China to $27.3 billion from $20.4 billion.
(Reporting By Lucia Mutikani; Additional reporting by Richard Leong
in New York; Editing by Andrea Ricci and Tim Ahmann)
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