Sharply narrower trade gap revives hopes for decent Q3 growth

Economists busy revising down their third quarter gross domestic product forecasts had to backpedal a bit on Thursday after Commerce Department data showed a steep shrinking of the U.S. trade deficit — despite an unexpected rise in weekly jobless claims. The trade gap shrank to $44.8 billion in July, Commerce Department data showed, down sharply from June’s $53.1 billion deficit and much lower than forecasts around $51 billion. The 13.1 percent decline was the biggest month-to-month percentage drop in the deficit since February 2009.

Argues Pierre Ellis, senior economist at Decision Economics:

The trade numbers are probably sufficiently better than expected to cause some upward revision in the GDP forecast. We’re seeing very strong growth in exports, offsetting some weakness last month, and the strength was in the right place, capital goods, without being centered in aircraft. There’s solid foreign demand for U.S. capital goods exports, so that’s a hopeful sign for the outlook. There’s enough strength abroad going into this apparent slowdown to keep the momentum going.

Or Am Ginzburg, head of capital markets at First New York:

The trade balance was better than expected, and despite worse jobless claims, that could move up GDP estimates and that is why we probably didn’t go down more than what we should have on the number. It was telling you there was no indication of the Hurricane Irene effect.

Economy signs: Some good news

A sign is pictured on Wall St. near the New York Stock Exchange in New York November 25, 2008. REUTERS/Lucas JacksonA look at the macroeconomic news and its impact on the mood of investors and the direction of the economy. Are we heading for a double-dip recession?

Jobless claims and trade data came in better than expected prompting some investor cheer today.

“We were expecting that things would slow down in the third quarter and start to pick up in the fourth quarter, but now it seems like the slowdown in the third quarter wasn’t as severe as we feared,” said David Sloan, an economist at 4CAST in New York.