US hiring drops, trade deficit widens but economy remains on the right track

US companies hired far fewer workers than expected last month, while the country’s trade deficit hit its widest point in two years in April, suggesting trade remained a drag on economic growth this quarter.

But the data yesterday nevertheless suggested the economy was growing solidly, with payroll growth still fairly robust and demand for imports surging

Private employers added 179,000 jobs to their payrolls in May, the ADP National Employment Report showed. That compared to 215,000 jobs in April and was below economists’ expectations for a gain of 210,000 jobs in May.

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It was released ahead of the government’s comprehensive employment report tomorrow. The ADP report does not have a good record predicting non-farm payrolls.

In a second report, the Commerce Department said the trade gap increased 6.9 per cent to $47.2bn (£28.16bn) as imports hit a record high. It was the largest deficit since April 2012 and followed a $44.2bn shortfall in March.

When adjusted for inflation, the deficit increased to $53.8bn from $50.9bn in March. Trade subtracted almost a percentage point from first-quarter gross domestic product. The economy contracted at a 1.0 per cent annual pace in the first three months of the year.

While there are signs that growth has since rebounded this quarter, gross domestic product growth will probably not top the 3.5 per cent rate that economists are anticipating.

Imports increased 1.2 per cent to an all-time high of $240.6bn in April. Imports of automobiles, capital goods, food and consumer goods all hit record highs in April.

The rise in capital goods could point to a pick-up in inventory accumulation by businesses, which could boost growth.

The trade deficit with the European Union was the largest on record, as was the gap with Germany. Imports from South Korea also touched a record high.