The Macro Sweep

May 6, 2014 1:57 pm

US trade deficit narrows as eurozone retail sales rise

An all-round good economic data day on Tuesday as the US trade deficit narrowed, eurozone retail sales increased and the UK’s services sector expanded at its fastest rate in four months.

Americas

US: Although a slide in exports depressed first-quarter growth, fresh trade figures suggest the worst of it was confined to the first two months of the year. A more than 2 per cent rise in exports in March narrowed the overall trade deficit in the world’s largest economy to $40.4bn from $41.9bn in February, the Commerce Department said on Tuesday. The deficit had been forecast to narrow to $40bn, according to economists.

March’s rise in exports – from $190bn in February to $193.9bn – will harden hopes that the US growth was beginning to regain momentum towards the end of a difficult first quarter for economy. Imports also rose during the month, albeit at a slower pace than exports. Imports climbed 1.1 per cent to $234.8bn.

Europe

Eurozone: Retail sales climbed 0.3 per cent in March, according to Eurostat, much better than the expected 0.2 per cent contraction. Year-on-year retail sales growth slowed 0.9 per cent, but that was also better than the mean 0.8 per cent estimate by analysts polled by newswires.

Increased food, drink and tobacco sales led the rise with retailers selling 1.3 per cent more in March across the euro area and 0.7 per cent more in the EU28 countries. This offset falling non-food purchases, which were 0.3 per cent lower in the euro area and 0.1 per cent lower in the full EU.

The highest increases in total retail trade were registered in Estonia and Latvia (both +2.8 per cent), France (+2.3 per cent) and Romania (+2.2 per cent). Retail sales declined in Portugal (-1.7 per cent), Austria (-0.9 per cent), Germany, Ireland and Slovenia (all -0.7 per cent).

The European Commission’s statistics bureau has revised its February retail trade data down to 0.1 per cent from 0.4 per cent in February.

Separately, the composite purchasing managers’ index, which includes readings for manufacturing and services activity, was confirmed at 54 in April, in line with an earlier flash estimate and up from 53.1 in March. The index, which is now at its highest level since May 2011, has been above the crucial 50 level that marks an expansion in activity for the past 10 months, reports the FT’s Claire Jones.

The separate reading for the services sector, which commands a much larger share of eurozone GDP than manufacturing or construction activity, rose to 53.1, from 52.2 in March.

The reading for the sector is especially important as a recovery here signals a strengthening of domestic demand – an essential development in the region’s return to full economic health.

The index also provided more signs that the recovery is broadening from the region’s core to its weaker periphery. The composite readings for Ireland and Spain hit eight- and seven-year highs.

UK: In April, the dominant services sector grew at its fastest rate in four months, as an improving labour market and higher levels of new business activity added momentum to Britain’s recovery.

The purchasing managers’ index compiled by Markit Economics and CIPS has come in at 58.7, well above the 50 reading that separates expansion from contraction and, more importantly, its 16th straight month of growth.

Chris Williamson, chief Economist at Markit, said: “The April numbers point to the economy growing by at least 0.8 per cent again in the second quarter and, with confidence about the future rising again in April, there’s no end in sight for the current super strong growth spell.

“The survey also brings news that private sector employment rose at a record pace in April, signalling 100,000 jobs being created each month.”

Asia Pacific

Australia: The Reserve Bank of Australia held its key interest rate at a record low of 2.5 per cent and said inflation trends should remain on target over the next two years.

The RBA has kept interest rates at a record low since cutting them in August and governor Glenn Stevens said on Tuesday “the most prudent course is likely to be a period of stability in interest rates.”

Monetary policy continues to “foster sustainable growth in demand and inflation outcomes consistent with the target,” he added.

The RBA’s low interest rates have played a role in driving the currency lower, which in turn has raised the cost of imports and caused inflation to climb. CPI in the first quarter was running at an annual rate of 2.9 per cent, towards the upper end of the RBA’s 2-3 per cent target.

Australia produced a fourth consecutive monthly trade surplus in March, but exports fell and the positive balance was not as high as expected.

Government data showed the trade surplus was A$731m in March, down 42 per cent from an upwardly revised A$1.26bn in February.

Climbing export volumes have helped Australia to record four straight monthly surpluses, following 23 months of deficits, but in March exports pared back 2 per cent.

Non-rural goods fell $578m (3 per cent) and non-monetary gold fell $56m (4 per cent). Rural goods rose $47m (1 per cent) and net exports of goods rose $1m (7 per cent). Services credits rose $40m (1 per cent).

Imports were flat from a year ago. Capital goods fell $119m (2 per cent), consumption goods fell $48m (1 per cent) and non-monetary gold fell $41m (12 per cent). Intermediate and other merchandise goods rose $224m (2 per cent). Services debits fell $36m (1 per cent).

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