Share “Rise in US exports brightens outlook for...”

Rise in US exports brightens outlook for economy

Associated Press Modified: April 12, 2012 at 4:00 pm •  Published: April 12, 2012
Advertisement

WASHINGTON (AP) — The outlook for U.S. economic growth is looking slightly better.

American businesses sold a record number of goods and services in Europe, China and other foreign markets in February, while imports declined.

Many economists began raising their forecasts for January-March growth after seeing Thursday's government report on the lowest trade deficit since the fall.

And the jump in exports contributed to the second straight day of gains on Wall Street. The Dow Jones industrial average closed up 181 points — its second largest gain of the year.

The economy still has a long way back to full health. More people applied for unemployment benefits last week, the government said in separate report. That followed last week's report that hiring slowed sharply in March after three months of strong job growth.

The mixed economic picture, along with tame inflation cited in a third report, gives the Federal Reserve more ammunition to stick with its plan to hold interest rates near record lows when it meets later this month.

"The underlying message is actually a good one," said Paul Dales, senior U.S. economist at Capital Economics, after the trio of reports was released. "It suggests that growth is a bit stronger."

The U.S. trade deficit narrowed more than 12 percent in February to $46 billion. That's down from $52.5 billion in January, the widest deficit in three and a half years.

Exports rose to a record $181.2 billion, while imports dropped to $227.2 billion.

A smaller trade deficit reduces the drag on growth. More exports help the economy grow because they typically boost factory production, which can fuel more hiring and lead to greater consumer spending.

And fewer imports subtract less from growth, largely because consumers are spending less on overseas goods and services.

Most economists were encouraged by the trade report, as well as a report earlier this week that said wholesale businesses restocked at a faster pace in February. That also meant factories were busier because businesses anticipated more consumer spending in the months ahead.

Dales said he expects growth only slowed in the January-March quarter to an annual rate of 2.5 percent. While that's down from 3 percent annual rate at the end of last year, it's better than the 2 percent rate he had initially projected.

Craig Alexander, chief economist with TD Bank Financial Group, also raised his forecast, although he's slightly more bearish. He now expects first-quarter growth at an annual rate of 2.3 percent, up from his initial 1.9 percent forecast.

"The basic story hasn't changed," Alexander said. "The story is continued modest economic growth and a gradual improvement in the labor market."

Continue reading this story on the...