The U.S. trade deficit widened more than expected in February as a rebound in exports was offset by an increase in imports, the latest indication that economic growth weakened further in the first quarter.
But the growth picture should brighten in the months ahead, with other data on Tuesday showing that activity in the vast services sector picked up in March as new orders rose strongly, and sustained strength in the labor market.
"There are some green shoots appearing this spring in the economic data which makes us more confident that 2016 is going to be a good year after a step-down in expectations and hopes at the start of the year," said Chris Rupkey, chief economist at
MUFG Union Bank in New York.
The Commerce Department said the trade deficit increased 2.6 percent to $47.1 billion in February, worse than economists' forecasts for a reading of $46.2 billion. When adjusted for inflation, the shortfall rose to $63.3 billion, the largest since March last year, from $61.8 billion in January.
That prompted economists to cut their first-quarter gross domestic product growth estimates by as much as half a percentage point to as low as a 0.4 percent annualized rate.
They see trade subtracting at least seven-tenths of a percentage point from GDP growth in the first quarter, up from 0.14 point in the fourth quarter. The economy grew at a 1.4 percent rate in the final three months of 2015. Though the trade report joined data on consumer and business spending in casting a dark shadow over the economy, the clouds could lift in the coming months.
STRONG SERVICES ACTIVITY
In a separate report, the Institute for Supply Management said its services industry activity index increased 1.1 points to 54.5 in March. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the U.S. economy.
Services industries reported an increase in new orders. A measure of orders for services exports jumped five points to 58.5, a positive sign for overall U.S. exports.
A third report from the Labor Department showed hiring by U.S. employers increased 297,000 to 5.4 million in February, the highest level since November 2006. Underscoring the strength and confidence in the labor market, 2.95 million people voluntarily quit their jobs in February, lifting the quit rate to 2.1 percent.
The Federal Reserve looks at the quit rate as a measure of confidence in the jobs market and it is hoped that increased labor market churn will drive up wages.
"For the most part, today's reports point to a domestic economy that is in good shape. First-quarter growth looks like it may be a little less solid than hoped for, but the underlying data indicate all is still well," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The dollar firmed against a basket of currencies, while U.S. stocks fell. U.S. government debt prices rose.
In February, exports of goods rose 1.6 percent, increasing for the first time since September. Overall exports of goods and services advanced 1.0 percent.
Exports have been undercut by a buoyant dollar, which has made U.S.-manufactured goods expensive relative to those of the country's main trading partners. Slowing growth in Europe and China has also eroded demand for U.S. goods.
But with the dollar rally fading, February's nascent increase in exports could be sustained. A survey last week showed a gauge of new export orders received by factories rose in March to its highest level since December 2014.
The dollar is down 1.3 percent on a trade-weighted basis so far this year after gaining about 20 percent against the currencies of the United States' main trading partners between June 2014 and December 2015.
"The recent dollar depreciation should lead to some strengthening in exports. But at this point, it is not clear if the solid gain in exports in February represents a change in the underlying trend or simply reflects noise in the series," said Daniel Silver, an economist at JPMorgan in New York.
In February, exports of food, automobiles and parts, as well as consumer goods increased. But exports of industrial supplies and materials were the lowest in nearly six years. Capital goods exports hit their lowest level since November 2011. Petroleum exports were the lowest since September 2010.
Imports of goods and services rose 1.3 percent in February, suggesting strong domestic demand. However, lower oil prices and increased domestic energy production are keeping the import bill in check.
Food imports hit a record high in February. But imports of industrial supplies and materials were the lowest in nearly seven years. Petroleum imports touched their lowest level since September 2002. Oil prices averaged $27.48 per barrel in February, the cheapest since December 2003.
The politically sensitive U.S.-China trade deficit fell 2.8 percent to $28.1 billion in February.
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