5/7/2015
By Jennifer Coombs

There’s a good possibility that Q1-2015 revisions for the U.S. gross domestic product (GDP), which is already at a very low +0.2%, may actually move into the negative column in the next reading. That’s because the international trade deficit for March came in much higher than expected at $51.4 billion for the largest widening of the deficit since October 2008. Much of this expansion had to do with the West Coast port strike, which was resolved mid-March, but played a major role in the skewing of the monthly data. This was especially evident in imports, which surged $17.1 billion in March as backlogs at the ports were cleared. Imports of consumer goods, especially cell phones, were especially heavy. On the export side, aircraft made up much of the value, but was still not enough to offset the massive surge in imports, noting just $1.6 billion. Ultimately, this resulted in the total goods gap in the month coming in at $70.6 billion which is the highest since August 2008. Interestingly enough, the gap in petroleum products came in at $7.7 billion versus $8.2 billion in February, and wasn’t a major factor in the March data as the decline in oil prices was offset by a rise in volumes. This data provides a very real picture of how much the West Coast port strikes impacted the economy in March – a “transitory” factor as the Federal Reserve would put it. In the end, we think these impacts will phase out by the second quarter and should just become a footnote for the reason behind the first quarter dip in the GDP.

Additionally, it appears that the Institute for Supply Management’s (ISM) reading of the non-manufacturing (services) purchasing managers index (PMI) has outpaced its peer research firm, Markit. For the month of April, the ISM non-manufacturing index extended its strong and stable trend, coming in at a reading of 57.8 which outpaced the solid 56.5 reading from March and the consensus estimate also at 56.5. It is also worth noting that over the past 10 months, this index has held between 58.8 on the high end to 56.5 on the low end. For the month, new orders were very strong at a reading of 59.2 compared to 57.8 in March. Backorders were also strong at 54.5 compared to 53.5 in March, and this is an unusually strong reading for this component. Nevertheless, strong overall orders point to future hiring, which is already quite strong in the employment component at a reading of 56.7 compared to 56.6 in the prior month. Pricing data continues to reflect the low-inflation environment and hovered just slightly above the breakeven level at a reading of 50.1. The upward pressures prevalent in this report point towards a stable and sizable recovery for the economy in the second quarter of the year.

Jennifer Coombs
Wall Street Strategies

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