Trade Deficit Declines Sharply to 3 1/2-Year Low : Dollar, Securities Prices Soar as Imports Plunge 6.4%, Indicating Slowdown in Consumer Binge
The nation’s merchandise trade deficit fell sharply in April to $9.9 billion, its lowest level since December, 1984, the Commerce Department said Tuesday in a report that sent stock and bond prices and the dollar soaring.
Economists in and out of the government hailed the report, the first to adjust exports and imports for seasonal factors, as the strongest sign so far that the trade deficit peaked at $170.3 billion last year and is heading steadily downward.
Exports Down Slightly
Exports declined by a slight 2.5% in April, the Commerce Department said, but imports fell much more sharply, by 6.4%. That suggested to analysts that the American consumption binge, which had fueled fears of a burst of inflation, had ended or at least paused.
By contrast, when the trade deficit declined in the previous month, imports rose but exports climbed even faster, and the financial markets reacted negatively.
“There’s nothing bad to say about this number other than that the next one may not be as good,” said Bruce Steinberg of Merrill Lynch, the New York investment banking firm. “Financial markets were not irrational in their reaction to it today.”
On Wall Street, the Dow Jones average of 30 industrials jumped 25.07 points to close at 2,124.47, its highest level since the Oct. 19 stock market crash. Bond prices also surged, and the interest rate on 30-year Treasury bonds fell to 8.81% from 9.02% the previous day.
The dollar gained against all major currencies, closing at 1.75 German marks, up from 1.72 marks the day before. Rumors swept the markets that the West German central bank was selling dollars in large amounts in an attempt to keep the greenback from rising even faster.
“Obviously, I’m very delighted we have good news,” Robert Ortner, undersecretary of commerce for economic affairs, told reporters. “The figures are very encouraging.”
Ortner said that, although the trade deficit accumulated at an annual rate of $171.6 billion during the last six months of last year, it is running at an annual rate of $141.9 billion for the first four months of this year.
“The essential story is on the export side,” Ortner added. “We had a very sharp gain in exports in March, and we held most of that gain. The underlying trend in exports is still very strong.”
Adjusted for Falling Dollar
Measured in their dollar value, exports have jumped 30% during the first four months of 1988 over the same period last year, Ortner said, while imports increased slightly less than 12%. When those figures are adjusted for the falling value of the dollar during that period, he said, exports have increased 25% and imports about 4%.
“There is every reason to believe and assume this improvement is going to continue,” Ortner said. “We expect imports may start to rise in later months, but we expect exports to rise faster.”
Jerry J. Jasinowski, chief economist for the National Assn. of Manufacturers, added: “American consumers and manufacturers are now clearly beginning to substitute American-made products for those made abroad by foreign competitors.” The pattern of slower imports and steady exports, he noted, “was broad-based and covers industrial materials, capital goods, automobiles, consumer goods and agricultural products.”
3-Year Improvement Seen
“Clearly, we have turned the corner and we can see a trade improvement for the next three years,” said Sara Johnson of Data Resources Inc., a Lexington, Mass., forecasting firm. The company now projects the yearly merchandise trade deficit as falling to $120 billion by 1990.
“Import penetration is slowing,” Johnson said. “The weaker dollar has begun to affect spending patterns. Business investment in capital equipment is surging this year but, with capital goods imports dropping in April, that suggests a definite shift toward American products.”
April’s seasonally adjusted $9.9-billion trade deficit was the smallest since the $8 billion recorded in December, 1984. It represented a marked improvement from the $11.7-billion deficit for March.
The Commerce Department earlier had reported the March deficit as $9.7 billion, before seasonal adjustment. But, when the department issued seasonally adjusted figures last week for the first time, that figure was revised sharply upward because March is typically a peak month for U.S. exports.
Statistical Fluke Suspected
Analysts recognized that the March deficit as initially reported might have been a statistical fluke. They saw no such danger in the report on the April deficit.
“There’s nothing to pick apart in today’s number,” said Jay Goldinger, an international exchange and bond specialist with Capital Insight, a Los Angeles investment firm. “The crux is that last month wasn’t a fluke. When you put together two months like this, you are seeing a major course change, and it’s positive.”
Imports fell in April to $36.1 billion on a seasonally adjusted basis from $38.6 billion the month before. Exports declined to $26.2 billion from March’s total of $26.9 billion.
Capital Goods Imports Drop
Although exports of capital goods held steady at $8.7 billion, imports in that category, which includes industrial machinery, communications equipment, computers and other high-technology goods, fell noticeably, to $7.9 billion from $8.6 billion.
If the March-April pattern in that key category holds for the rest of the year, the United States will have regained the trading surplus in capital goods it last enjoyed in the early 1980s, before the steep appreciation of the dollar priced many American manufactured goods out of world markets.
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