Narrowing deficit may boost economy

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The U.S. trade deficit narrowed to $47.2 billion in October, the smallest shortfall since May 2018, the Commerce Department reported Thursday, which could lift fourth-quarter gross domestic product.

Imports and exports both fell in the month, a results of the trade war with China.

The 7.6% decline in the deficit was the largest slide since January. The September deficit was revised down to $51.1 billion from the initially reported $52.5 billion.

Economists polled by IFR Markets had expected a $49.0 billion gap.

The goods deficit with China dropped to $31.3 billion, as exports rose 3.4% while imports were flat.

“We’re seeing lower imports of consumer goods overall, with most of that due to shrinking imports from China,” notes Jeoff Hall, managing economist at Refinitiv. “It should also mean a positive contribution to GDP via the net exports channel.”

But Stephen Gallagher, chief U.S. economist and head of research in the Americas at Societe Generale, believes recession is imminent. “We expect the U.S. to enter a mild recession in spring of 2020, with two quarters of declining growth,” he wrote in a briefing.

With a presidential election next year, it “raises a serious question of whether prospects for the election reduce the odds of a slowdown,” since “policy efforts can offer stimulus.”

With three insurance cuts from the Federal Reserve this year, he said, “there is limited scope for policy, fiscal or monetary, to respond and preclude a downturn.”

Additionally, with “a divided Washington,” fiscal measures are unlikely to win approval.

Interestingly, Gallagher said, since it usually takes eight to 12 months after a recession begins for it to be “officially declared,” such verification wouldn’t come until after the November 2020 elections.

Separately, initial claims for unemployment fell to a seasonally adjusted 203,000 in the week ended Nov. 30, the Labor Department reported, a level not seen since mid-April.

In the prior week there were 213,000 claims. Economists expected a rise to 215,000 claims in the week.

The number of continued claims gained to 1.693 million in the week ended Nov. 23 from 1.642 million a week earlier.

Factory orders rose 0.3% in October, Commerce said, after dropping a revise 0.8% in September, first reported as a 0.6% decrease.

Economists expected the 0.3% gain.

Year-over-year factory orders fell 0.4%.

Orders for non-defense capital goods excluding aircraft, a proxy for business spending plans, grew 1.1% in the month, just below the preliminary 1.2% gain.

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