Trade Deficit Hits Record $19 Billion : November Shortfall Makes 1986 Worst Year Ever, Dashes Turnaround Hopes
The U.S. trade deficit soared to a record $19.2 billion in November, the Commerce Department reported Wednesday--making 1986 the worst year ever and dashing expectations among Reagan Administration officials and private economists who had been counting on continued improvement in the nation’s trade imbalance.
After three months of shrinking deficits, a huge jump in imports to $37.8 billion from $31.4 billion the previous month accounted for most of the November deterioration in trade. Exports, meanwhile, fell slightly to $18.6 billion from the October level of $19.3 billion. The overall trade deficit was reported as $12.1 billion for October.
The previous record trade deficit was $18 billion in July.
The excess of imports over exports for the first 11 months of the year hit $159.1 billion, surpassing the record $148.5-billion shortfall for all of 1985.
Raises Doubts on Economy
The unexpected surge in the trade deficit raised fresh doubts about the outlook for the economy next year.
With consumer spending expected to slacken somewhat early in 1987 and business investment likely to remain anemic, analysts have been counting on a decline in the trade deficit to help keep the economy growing for the fifth year in a row.
Economic Growth in Doubt
“But if we don’t get a turnaround in the trade deficit soon,” said Irwin Kellner, chief economist at Manufacturers Hanover Bank in New York, “we might as well kiss the expansion goodby.”
Other recent indicators, however, including strong job gains and a boost in industrial production, have been pointing to continued economic growth.
Some analysts cited a handful of one-time factors as reasons why the November trade deficit might have jumped so much, but all of them said that they consider the record imbalance a bad omen.
Commerce Department chief economist Robert Ortner, for example, suggested that elimination of some tax breaks next year under the new tax law and the Dec. 1 imposition of a tiny tariff of 22 cents for each $100 of value might have contributed to the November surge in imports. Importers may have stocked up to beat the tariff deadline and to have enough merchandise on hand for consumers buying while they still could write off sales tax on their income tax returns, he said.
Nonetheless, Ortner added: “Nobody is going to put a happy face on it.”
Report Called ‘Bad News’
And David Levine, chief economist at Sanford C. Bernstein & Co. in New York, speculated that importers might be trying to beat any protectionist measures Congress could approve next year, but he still termed the trade report “bad news for those of us who have been counting on an upsurge in growth.”
The expectation for an improved balance of trade was based on the weakening of the dollar over the last 20 months against several major foreign currencies, making U.S. goods less expensive in the world marketplace.
From the peak in July, the deficit fell to $13.3 billion in August, $12.6 billion in September and $12.1 billion in October.
But economists suggested that a further decline in the dollar, particularly against Canada and Asian developing nations that have kept their currency values from rising, may be needed to force down the trade deficit.
“It’s very disturbing,” said Lawrence Chimerine, head of Chase Econometrics in Bala Cynwyd, Pa. “Things aren’t getting better.”
The trade deficit report sent the U.S. currency plunging against all major currencies in European currency markets, with the dollar hitting six-year lows against the West German mark and Swiss franc.
The report also seems sure to add to the gloom among Administration officials, who have been counting on a steady decline in the trade deficit to help ward off protectionist legislation in Congress.
Sen. Robert C. Byrd (D-W.Va.), who will become majority leader next week when Democrats take over control of the Senate, issued a statement attacking White House trade policies.
“The Administration has pretended that we have no trade crisis and that our trade problems will take care of themselves,” Byrd said. “With today’s news, the Administration should make a New Year’s resolution to work with Congress to enact comprehensive trade and competitiveness legislation that will restore jobs and halt the erosion of our industrial base.”
Among the measures key lawmakers are considering are tariffs or quotas for countries that subsidize their exports and construct various barriers against imports. The Administration has opposed most protectionist measures on the grounds that they only invite retaliation from other countries.
Across-the-Board Rise
The rise in imports was across-the-board, led by an influx of automobiles and other goods from Japan.
The trade deficit with Japan hit a record $6.7 billion, up from $5 billion in October. With most of Japan’s auto industry losing money on its current exports to the United States because of the strength of the yen, however, analysts argued that Japanese auto exporters are likely to lose sales in coming months as they are forced to raise prices.
A revised measure of the trade deficit for October, which takes into account more recent data and is used in calculating the nation’s gross national product, showed a deficit of $14.7 billion for October--only slightly below the $14.9-billion monthly average for the third quarter--and a total of $138.2 billion for the first 10 months of the year.
