Trade Deficit Up, Employment Growth Weak in Latest Government Figures

By Jeff Ferry, CPA Research Director

 A strong rise in April’s trade deficit and lackluster growth in May employment figures underscore the challenges facing the Trump Administration as it tries to piece together an economic growth strategy. 

According to the Department of Commerce, the U.S. trade deficit rose by $2.3 billion in April to reach $47.6 billion for the month. Because month to month figures can be volatile, the year-to-date figure is more significant. For the first four months of 2017, our trade deficit reached $186.6 billion, 13.4% above the comparable period last year. If that increase is sustained throughout the year, we’re on track to finish out 2017 with a trade deficit of $573 billion, compared with last year’s $504.8 billion.

Rising import penetration is related to the lackluster employment figures, which also came out Friday, in a separate report from the Bureau of Labor Statistics. Employment in the month of May rose 138,000, somewhat less than economists’ expectations.  More worrying is the fact that both the labor force participation rate and the employment-to-population ratio both fell by two tenths of a percent, to 62.7% and 60.0% respectively, indicating that too many Americans continue to give up on looking for work and drop out of the workforce.

The largest growth in employment for the month of May came in professional and business services (38,000), health care (32,000), and food service and drinking places (30,000), reinforcing the well-known trend in this economic recovery for job growth to be concentrated in low-wage and/or low-hour (part-time) employment. Professional and business services include a range of industries, some of them well-paying. The trend of growth at the top and the bottom of the income distribution appears to be continuing. Manufacturing jobs, which tend to fall in the middle, actually declined by 1,000 in the month of May. 

On the bilateral trade front, our deficit with China worsened in the first four months of this year to reach -$123.9 billion, 6.1% deeper in the red than the comparable year-ago figure.  Our second-largest bilateral deficit was with Mexico, at -$24.6 billion, 12.3% worse than the year-earlier level. For Japan, our bilateral deficit hit $21.9 billion year-to-date, 3.1% better than the year-earlier level. In fourth place came Germany, where our year-to-date deficit was $21.8 billion, 3.5% better than the year-earlier level.

Our advanced technology deficit for April was close to flat, at $6.04 billion. However, on a year-to-date basis, our advanced technology deficit rose 36% to reach $25.1 billion. Advanced technology is dominated by two industry segments, information and communications (basically computer and internet technology), where we typically run a deficit, and aerospace, where we typically run a surplus. In the first four months of this year, the aerospace sector was effectively flat compared to the previous year, with a surplus of $25.7 billion. But the information and communications deficit shot up 17.9% from -$38.0 billion a year ago to -$44.8 billion in the period this year.

In the turbulent world of politics, many issues are stymied by Congressional infighting. Trade reform remains an area where executive action can achieve significant results. We’re looking hopefully to Washington for progress on trade before the year is over.

Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.