Brief Macro: Understanding the Widening of the U.S. Trade Deficit and more

In this briefing:

1. Understanding the Widening of the U.S. Trade Deficit
2. Weak February Payrolls But U.S. Labor Market Is Still Tightening

1. Understanding the Widening of the U.S. Trade Deficit

• The widening of the U.S. merchandise trade deficit to a record $891 billion in 2018 received considerable attention in the financial press this week but the criticisms that this widening represented either weakness in the U.S. economy or a failure of U.S. economic policy are misplaced.
• We expected a widening of the trade deficit in 2018 as a consequence of the tax cut and stronger economic growth.  Higher investment spending and a wider fiscal deficit were all but certain to lead to a larger trade gap.
• The dollar has firmed as the trade gap has widened over the last four years, which suggests the net overseas demand for U.S. assets has been rising faster than the current account deficit.

2. Weak February Payrolls But U.S. Labor Market Is Still Tightening

Nonfarm payrolls rose only 20,000 in February but the unemployment rate declined to 3.8% from 4.0%.  Average hourly earnings increased 0.4% and year-over-year wage growth picked up.  Monthly payroll changes are highly volatile and the three-month average of payroll growth is 186,000, which is still solid.  Also, most metrics show that the labor market tightened in February.