Trade Deficit at $10 Billion for January : Record $19 Billion in Exports Fails to Stem Flow of Red Ink
U.S. exports of goods hit a monthly record of $19.4 billion in January, but that strong showing was swamped in a torrent of imports and the nation began 1985 with a huge $10.3-billion trade deficit, the Commerce Department said Thursday.
The massive $29.7-billion influx of imports, most of it manufactured goods and capital equipment, started the new year off on an ominous note, economists in and out of government warned.
And Commerce Secretary Malcolm Baldrige said in a statement that the trade deficit, which hit a record $123.3 billion in 1984, could balloon “to about $140 billion this year.”
The January deficit marked a sharp 28% increase over the $8-billion deficit recorded last December, but it did not reflect the full impact of the dollar’s historic rise against other currencies so far this year--a rise whose most dramatic chapter occurred in February.
The January increases in imports were most pronounced in the category of manufactured goods, which jumped $2.2 billion from the previous month to $20.8 billion.
In addition, the increases extended to most other major categories, including key areas of U.S. industrial competition with foreign manufacturers: automobiles, telecommunications equipment and parts, aircraft and basic iron and steel products.
Farm Exports Hurt
In part because of freezing weather, agricultural imports increased by $104 million over December, while U.S. farm exports fell by $304 million because of the rising dollar. The result was that the traditional U.S. trade surplus in agriculture dwindled to $1.2 billion for the month.
Because of declines in the price of crude oil, the value of U.S. petroleum imports fell 3.3% to $4.3 billion.
Thus, the soaring trade deficit in January, the highest since last September, far outweighed the impact of the record $19.4 billion in exports, even though Baldrige predicted in his statement that total foreign sales would increase steadily during the year.
Other analysts were less sanguine, however.
“To have this increase so early in the year--before the impact of the dollar’s strength was even felt--is a very negative sign,” said Allen Sinai of Shearson Lehman Bros. Inc. “Under current trends--that is, with no real movement on controlling the budget deficit--the situation will worsen.”
Sinai warned: “By the second quarter, it could be a real threat to the strength of the expansion. . . . We have never before had a trade-induced downturn. But the trade-deficit figure is a signal of an emerging risk to the longevity of the economic expansion.”
Robert T. Parry, chief economist at Security Pacific National Bank in Los Angeles, agreed that the January figures are more likely the leading edge of a trend rather than an aberration.
“We expect poor trade numbers through 1985,” he said. “The primary reason is that we are going to see a continuation of the strong dollar.”
Parry, too, saw a long-term threat to economic expansion: “The growth of domestic output is going to be reduced to the extent that we purchase imported goods instead of goods produced here. We still expect 4% growth this year but, if the dollar goes up more than we expect and the trade deficit is worse than we expect, that could have a direct impact on growth this year.”
