Trade Deficit Hits 3-Year Low : Report Sparks Immediate Rally on Wall Street

The U.S. trade deficit shrank to $9.89 billion in April, its best showing in more than three years, the government said today in a report that sparked an immediate rally on Wall Street.

The Commerce Department said a steep drop in imports helped push the deficit down by 15.5% from the revised March figure of $11.7 billion.

Many analysts had feared that the deficit would widen in April, so the report showing that it actually shrank to its lowest level since December, 1984, sent investors scrambling to buy dollars and U.S. stocks and bonds. The buying wave pushed the dollar up sharply against key foreign currencies, wrenched down interest rates in the bond market and gave an early boost to Wall Street, where stock prices jumped.

“This is great news all the way around,” said Jay Goldinger, a Los Angeles investment counselor. “We should heave a great sigh of relief. Everyone was prepared for a hurricane, and we got bright sunshine and not a cloud in the sky.”

Commerce Undersecretary Robert Ortner said at a news briefing that the figures prove that America’s trade problems are finally on the way to being resolved.

‘Very Encouraging’

“These figures are very encouraging,” he said. “We are continuing to get an improvement in trade.”

The government said Americans’ appetite for imports declined by 6.4% to $36.1 billion in April. Exports were also down, but by a smaller 2.5% to $26.2 billion. The trade deficit is the difference between imports and exports.

The improvement gave the country its first single-digit trade deficit since a $9.9-billion imbalance in August, 1985. It was the lowest imbalance since an $8.03-billion deficit in December, 1984.

The March deficit was originally reported as a single-digit figure as well at $9.7 billion. But that was before the department began adjusting to take into account seasonal factors.

After those adjustments, the March deficit grew to $11.7 billion. Beginning with the April report, the department will report only seasonally adjusted figures in the hope that the adjustments will smooth out some of the erratic swings that in recent months have sent financial markets into a tailspin.

The original February deficit, which was higher than expected, sent the dollar plunging in value around the world and pushed the Dow Jones industrial average down 101 points, its fifth-worst loss ever.

Foreign Cars Off 4.6%

The markets were not particularly cheered by the March trade improvement, because it showed a steep rise in imports along with a record level of export sales. Financial investors worried that the big rise in imports indicated that faster domestic demand would lead to higher inflation.

The big decline in April imports was expected to ease fears that the U.S. economy is overheating.

For the first four months of the year, the U.S. trade deficit was running at a seasonally adjusted annual rate of $141.8 billion. If this trend holds for the rest of the year, it will be a sharp improvement from last year’s record trade deficit of $170.3 billion.

The April improvement in imports reflected an 8% drop in foreign purchases of capital goods, which fell to $7.9 billion. Purchases of foreign cars were also down, falling 4.6% to $7.3 billion while purchases of other consumer goods dropped 7% to $7.7 billion.

Oil imports rose in April by 3.5% to $3.35 billion.

The 2.5% drop in exports represented general weakness in a variety of non-food categories rather than a steep drop for any single item. Food exports edged up 0.5% to $2.59 billion.