Overall Trade Deficit Widens as Earnings Fall
America’s overall trade deficit widened unexpectedly in the first quarter of the year, the government said today in an ominous report about the U.S. economic future.
The Commerce Department release came one day after stocks and bonds rallied powerfully in reaction to another report that the April merchandise trade deficit shrank to $9.89 billion, the best showing in more than three years.
But the department said today the broadest measure of U.S. trade, which includes services and investment earnings as well as merchandise, showed a $39.8-billion deficit in the first quarter, compared with a $33.5-billion deficit the previous quarter. The rise came from a decline in investment earnings abroad.
Key Reflection of Drop
This figure is considered important because it is a key reflection of how the United States has been transformed from the world’s largest creditor nation six years ago into the world’s largest debtor now.
It means America’s wealth must now be transferred abroad to service its debt and the only way the total debt will be reduced is for the country to start running surpluses in merchandise, which experts do not expect soon.
Many economists have warned the debt service burden will eventually lower the standard of living for Americans, the price the United States will have to pay for living beyond its means in the 1980s.
Sobering Effect
The latest trade news and fear of a Midwestern drought combined to have a sobering effect on Wall Street today.
Other government reports released today suggested a mixed picture of the economy.
The Commerce Department said retail sales, restrained by lagging car purchases, rose a scant 0.1% in May, evidence of weak consumer demand and a possible economic slowdown.
On the other hand, the Federal Reserve said production at the nation’s factories, mines and utilities rose a moderate 0.4% in May, the eighth consecutive month without a decline.
With the latest growth, overall industrial production now stands 6.1% higher than it was a year ago, a further sign of the resurgence of the U.S. manufacturing sector.
