The weak May jobs report is the latest piece of evidence that the economy's soft patch is proving even softer than feared. The slowdown in job creation reflected weakness across the board. There was no one culprit to single out. Supply-chain problems from Japan's natural disaster probably explain the 3,000 jobs lost in autos, but that was a trivial contributor to the overall slowdown.
It now seems likely that second-quarter GDP growth (we expect 2.0%) will be little different from the first (1.8%). We still believe that the current soft patch represents a bump in the road on a prolonged and subdued recovery, rather than the precursor of a double dip.
Pressures from rising commodity costs, plus supply-chain disruptions from Japan's natural disaster, and extreme weather domestically have combined to slow the economy's momentum.
But downside risks have become more troubling, and our calendar-year forecasts for GDP growth have been reduced to 2.5% for 2011 (from 2.7%) and 2.7% for 2012 (from 2.9%).
The upcoming week will be light on economic releases. The Trade Balance report is the only one we are singling out for special attention. We expect the trade deficit to narrow to $46.4 billion in April, from $48.2 billion in March.
Implications
March saw big jumps in both export and import volumes, so we should expect a correction in April ? but imports will probably drop more than exports. Automotive imports should drop as the disruptions from the Tohoku earthquake resonate. We also expect oil import volumes to drop, but higher oil prices should mean that the oil import bill decreases only slightly. Trade was roughly neutral for growth in the first quarter of 2011; it should be a plus for the second quarter. Strong export growth remains one of the few major drivers of growth.
