Economic outlook brightens

Lower trade deficit points to growth despite a hiring slowdown last month

Matt Rourke/File/Associated Press
While US exports rose to a record high in February, imports dropped, producing the narrowest trade deficit in four months.

WASHINGTON - The outlook for US 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 helped drive stocks higher for a second straight day. The Dow Jones industrial average rose more than 160 points, while broader indexes also increased.

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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 US economist at Capital Economics. “It suggests that growth is a bit stronger.’’

The trade deficit narrowed more than 12 percent in February to $46 billion. That is down from $52.5 billion in January, the widest deficit in 3 1/2 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 is better than the 2 percent rate he had initially projected.


The jobs picture dimmed a little last week after the government said hiring slowed in March to half the pace of the previous three months.

The Labor Department offered more disappointing news Thursday: The number of people seeking weekly unemployment benefits jumped last week by 13,000 to a seasonally adjusted 380,000 - a 10-week high.