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Economic Watch: Exports Increase, Service Sector Expands

April 5, 2016

By Evan Lockridge

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While the U.S. trade deficit increased to a six-month high in February, U.S. exports seem to finally be turning around for the better. Meanwhile, the nation’s service sector improved again last month, and a final report on manufacturing offers hope for this freight-significant indicator.

The Commerce Department said on Tuesday the nation’s trade gap increased 2.6% to $47.1 billion as an increase in imports outpaced a gain in exports. However, the 1.6% hike in the exports of goods is the first gain since September. Exports have been down since last year, due to the strength of the U.S. dollar.

However, expectations are that the value of the dollar against foreign currencies will continue to ease and exports should grow. Reuters reports a survey last week showed a gauge of new export orders received by manufacturers rose in March to its highest level since December 2014.

While this growth in exports bodes well for the future, the overall increase in the trade deficit is expected to negatively affect first quarter U.S. gross domestic product numbers when they are released later this month.

Service Sector At Highest Level in Three Months

A separate report, also released on Tuesday, shows the nation’s service sector grew again – at its best pace since December, according to a survey of the nation’s purchasing managers.

The Institute for Supply Management’s Non-Manufacturing Index registered 54.5% in March, 1.1 percentage points higher than the February figure. A reading above 50% indicates the non-manufacturing sector economy is generally expanding; below 50% indicates the non-manufacturing sector is generally contracting.

The New Orders Index registered 56.7%, 1.2 percentage points higher than in February. The Employment Index increased 0.6 of a percentage point to 50.3% from the February reading of 49.7% and indicates growth after a month of contraction. The Prices Index increased 3.6 percentage points from the February reading of 45.5%, indicating prices decreased in March for the fifth time in the last seven months.

“The majority of respondents’ comments indicate that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth,” Anthony Nieves, chair of the Institute for Supply Management’s Non-Manufacturing Business Survey Committee.

Twelve of the 18 main service industries reported growth in March.

According to MarketWatch, “The sector accounts for more than 80% of American jobs and is now the bedrock of the economy. An expanding service sector signals the economy is still growing a moderate pace despite weakness in the energy patch, soft exports and lackluster business investment.”

Factory Orders, Shipments Decline But March Looks Better

Both reports follow one from Monday showing continued weakness when it comes to new orders and shipments of factory-made goods in February, including in a closely watched barometer of future economic activity. However, an earlier report from March may show there is light at the end of the tunnel

New orders for manufactured goods fell in February 1.7% from the month before, following a downwardly revised 1.2% January drop that was first reported as a 1.6% increase, according to the Commerce Department. This marks 14 out of 19 months that new orders have fallen.

An indictor of future business investment, new capital goods orders minus aircraft fell by a revised 2.5%, worse than an initially reported 1.8% decline last month.

Overall factory shipments, down 10 out of the last 11 months, fell another 0.7% in February following a 0.2% January decline.

The good news is that recent reports for March show this slump in manufacturing may be over. Economic activity in manufacturing expanded for the first time in the last six months, according to the Institute for Supply Management in a report released the first of the month.  A separate report on the manufacturing sector from the financial information services provider Markit also showed sustained growth across the U.S. manufacturing sector during March, but the overall pace of expansion remained subdued.

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