Thursday, 09 Sep 2010 02:05 PM
New U.S. 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 on Thursday 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 UFJ in New
York.
Initial claims for state unemployment benefits dropped 27,000 to
451,000, the lowest since the week ended July 10, the Labor
Department said. That was well below financial market
expectations for 470,000.
Separately, the trade deficit shrank 14 percent to $42.8 billion
in July, smaller than the $47.3 billion gap that markets had
expected. Analysts said that suggested the pace of economic
growth would quicken in the third quarter.
Stocks on Wall Street rose on the data, while prices for
safe-haven U.S. government debt slipped. The dollar hovered near
a 15-year low against the yen.
The U.S. economy braked sharply in the second quarter, expanding
at just a 1.6 percent annualized rate, and soft data in recent
months had fueled fears of a double-dip recession.
While the most recent signs have tamped down those fears, they
likely come too late for the embattled Democratic Party ahead of
the November 2 congressional mid-term elections.
Opinion polls suggest voters, dissatisfied with President Barack
Obama's handling of the economy, could punish Democrats and hand
control of the House of Representatives, and perhaps even the
Senate, to Republicans.
A weak labor market has been undermining the economy's recovery
from its longest and deepest downturn in 70 years, but a few
rays of light are starting to poke through the dark cloud of
unemployment.
Government data on Friday showed private employers added a
better-than-expected 67,000 jobs in August, while 36,000 more
jobs were created in July than previously reported.
Confronted with a 9.6 percent unemployment rate and potentially
big losses for Democrats at the polls, Obama on Wednesday called
for $50 billion in spending on infrastructure and tax breaks for
businesses.
The decline in claims for unemployment benefits last week saw
them push further away from a nine-month high of 504,000 touched
in mid-August, a further sign of some stability returning to the
labor market.
"Given the flood of soft economic data that we've seen in recent
months, the continued improvement in jobless claims is
encouraging as it reinforces the reversal of the negative trend
that had been in place," said Jim Baird, a partner at Plante
Moran Financial Advisors in Kalamazoo, Michigan.
"However, we shouldn't lose sight of the fact that the labor
market is still exceptionally weak."
A Labor Department official said the department had to estimate
claims data for some states that had been unable to submit data
due to Monday's Labor Day holiday.
Some have since submitted their data and the official said the
figures were close to the department's estimates, indicating the
data was unlikely to be revised much.
The shrinking of the trade deficit was welcome news after a
widening trade gap sliced nearly 3.4 percentage points off U.S.
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.
Economists said July's shrinking gap suggested third-quarter
growth could improve on the second quarter's dismal performance.
A Reuters poll released on Wednesday showed economists were
looking for GDP to expand at a 1.8 percent annual rate in the
third quarter, just a fraction above the April-June pace.
The smaller trade gap reflected a 1.8 percent increase in
exports to $153.3 billion, the highest since August 2008.
Imports fell 2.1 percent to $196.1 billion.
However imports from both China and Germany -- two countries
with persistent trade surpluses -- were the highest since
October 2008.
The closely watched trade deficit with China fell almost 1
percent in July, but for the first seven months of the year it
was nearly 18 percent higher, at $145.4 billion, compared to the
same period in 2009.
U.S. lawmakers are expected to turn their attention to China's
exchange rate practices when they return next week from their
summer recess.
Many accuse Beijing of deliberately undervaluing its currency by
as much as 40 percent to give Chinese exporters an unfair trade
advantage.
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