U.S. Trade Deficit Hits Record $101.6 Billion : More Than Double 1983 Level, Moves Nation Closer to Net Debtor Status; Factory Use Falls

The broadest measure of U.S. trade hit a record $101.6-billion deficit in 1984, more than double the previous record shortfall set one year earlier, the Commerce Department said Monday.

U.S. factory use, meanwhile, fell sharply in February to its lowest level in a year, the Federal Reserve reported. Factories, mines and utilities operated at 80.7% of capacity last month, down 0.7 percentage point from January.

And the dollar tumbled against other major currencies as the extended closure of 70 Ohio savings and loan associations fanned worries about the American banking system.

The deficit in the nation’s broadest trade measure, called the current account, swelled from $41.6 billion in 1983 and helped move the United States closer toward the status of a net debtor country for the first time in 71 years.

The current account measures not only trade in merchandise but also in services, mainly the flow of investment earnings.

First Time Since World War I

While the United States has not posted a merchandise trade surplus since 1975, surpluses on investment earnings were usually sufficient to cover the trade deficits.

But the new report indicated that, for the first time since before World War I, foreigners were on the verge of owning more capital in the United States than Americans own abroad.

The United States started the year with a surplus of $104 billion in investments overseas, but that had declined to $32 billion by the end of 1984.

Analysts said it was very likely that the surplus became a deficit sometime during the first three months of 1985, although that fact will not be confirmed until a June accounting is made.

It would mark the first time that the United States has been a net debtor since 1914, when foreigners owned $3.7 billion more in U.S. assets than Americans owned in foreign assets.

Analysts blame the poor U.S. trading performance on the strength of the dollar against foreign currencies. A strong dollar makes U.S. goods more expensive overseas while increasing U.S. purchasing power of foreign products.

There is disagreement among economists about the threat posed to the United States from a position as a net debtor. Some argue that the country was a net debtor from its founding until World War I without any adverse effect.

Blames Harsh Winter

But others say there is a danger in allowing so much U.S. capital to be controlled by foreigners, since, if foreigners became disenchanted with their American investments, the dollar’s strength could drop rapidly and spark higher U.S. inflation.

The decline in factory use was in tandem with an earlier reported 0.5% drop in industrial production in February.

The Fed blamed the capacity utilization decline on harsh winter weather in early February that forced some factories to close. But some analysts said the drop was more a reflection of the inroads being made into U.S. production by strong foreign competition.

Factory use hit a peak during the current recovery of 82.7% of capacity last July. The rate fell to 81.4% last October and was essentially unchanged through January before the big February drop.