Trade Deficit Growth Is Less Than Expected
The U.S. trade deficit widened slightly to $12.4 billion in January, the Commerce Department reported Thursday, but the figures reflected further improvement in the nation’s underlying trade imbalance with the rest of the world.
After taking account of seasonal variations and the effect of the lower value of the U.S. dollar, the smaller than expected $240-million increase in the monthly trade deficit means that the gap between the volume of imports and exports continued to narrow substantially at the start of this year, analysts said.
“Exports will continue to be the star sector of the economy,” said Narriman Behravish, a senior economist at Wharton Econometrics in Philadelphia. “Trade is likely to add a full percentage point to growth this year--a sharp turnaround from just two years ago in 1986, when the trade sector held down economic growth by an equal amount.”
The modest increase in the trade deficit followed two months of sharp drops. In November, the trade gap narrowed by $4.4 billion to $13.2 billion and closed further in December to $12.2 billion.
The Reagan Administration, which has been counting on a rising tide of exports to keep the economy afloat this year, was pleased that the latest trade figures were not worse. “There was a seasonal decline in exports, which have dropped in January every year of this decade,” Commerce Secretary C. William Verity Jr. said in a statement.
The trade figures “confirm the improving trend,” Verity added. “There is obviously a long way to go to eliminate the trade deficit. But we are on the right track,” he said.
Exports, which had surged to record levels in November and December, fell by about 10% in January, to $22.3 billion. Imports also fell, but by a smaller 6%, to $34.8 billion.
Unlike most other government economic statistics, the trade figures were not adjusted to remove recurring seasonal fluctuations, such as the post-Christmas dip in exports. The adjustment was dropped two years ago because of the difficulty of accounting for unusual month-to-month fluctuations.
Seasonal Adjustments
Now that the trade report has been improved to overcome such difficulties, the Commerce Department will resume seasonal adjustments beginning with the April statistics, which will be released in June.
The reported trade deficit would normally widen by more than $1 billion in January simply because of just such seasonal factors, so a modest increase of less than $250 million suggests a significant real improvement.
Despite such problems with interpretation, the trade figures have been closely watched by investors in recent months because of the sudden, dramatic effects they can have on exchange rates and the stock market.
Reaction Is Favorable
In financial markets, where analysts generally had expected the January trade deficit to reach at least $13 billion, investors reacted favorably to the Commerce Department report.
The dollar rose sharply against most major currencies, except the Canadian dollar, in hectic trading Thursday. The stock market closed with the Dow Jones industrial average up 21.72 points.
While analysts believe the trade gap should continue to narrow over the next few months, many are worried that further gains will be more difficult to achieve later in the year.
“The outlook for February and March is good, but we still expect imports to hold at very high levels this year,” said Stephen Roach, a senior economist at Morgan Stanley, a New York investment firm. “It looks like we will still be left with an unacceptably high trade gap in 1988, which could put a lot of pressure on the currency and domestic interest rates down the road.”
Deficit With Japan
The deficit with Japan--which has a wider trade imbalance with the United States than any other nation--fell to $3.9 billion, a 17.6% plunge to the lowest level since December, 1986. A sharp drop in Japanese auto imports, which have jumped sharply in price because of the strong yen, accounted for much of the decline.
The deficit with Western Europe also fell to $1.3 billion from $2.7 billion in December.
By contrast, the U.S. trade gap with the newly industrialized states of Asia--Taiwan, South Korea, Singapore and Hong Kong--widened to $2.9 billion from $2.5 billion, while the deficit with Canada also jumped to $1.1 billion from $600 million.
The latest trade figures should play only a minor role on Capitol Hill, where Congress is putting the finishing touches on a trade bill the Reagan Administration is trying to modify to remove many of its protectionist features.
Labor officials, however, continued to press lawmakers to resist the Administration’s efforts, hoping to dramatize the issue for the political campaign by forcing President Reagan to veto the measure.
“The U.S. trade deficit, up over last month’s, is more than enough to show that there’s a need for a strong trade bill,” said Lorrie McHugh, a spokeswoman for the AFL-CIO labor federation. “The figures are the reality and no amount of theorizing can deny them.”
