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Trade Deficit Jumps to $12.5 Billion, Exceeding Most Analysts’ Forecasts

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The nation’s foreign trade deficit widened sharply to $12.5 billion in November, the Commerce Department reported Wednesday, confirming that last year’s improvement in the trade gap will slow considerably over the next several months.

The November deficit was the largest monthly trade imbalance since last June. Imports rose $1.6 billion, or 4.2%, during the month to $39.7 billion, while U.S. exports fell by $639 million, or 2.3%, to $27.2 billion. The deficit in October had been $10.3 billion.

A separate measure of the trade gap that the department will start using in March put the November deficit at $10.9 billion--up from $8.8 billion in October. The new system, which does not count insurance and freight charges incurred abroad, is used by most other countries.

The widening in November was significantly greater than analysts had expected. The rise sparked a temporary flurry in the financial markets, but the dollar’s value recovered later in the day and the stock market also calmed down.

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More broadly, however, the deterioration revived assertions by critics that the drive to trim the deficit has stalled and will require new measures to help jump start it. Such action would aim either to reduce demand at home so Americans buy fewer imports or to push the dollar down further so U.S. products would be more competitive abroad.

William C. Melton, economist for IDS Financial Services in Minneapolis, said new moves will be needed because the government’s reliance on a low dollar to spur more exports and dampen the appetite for imports “just isn’t cutting the mustard.”

“You can’t find anything (in the November trade report to show) where you’re really making progress,” Melton said. He said the best prescription would be for President-elect George Bush to try to “slow consumer spending. That means very high interest rates or cutting the budget sharply.”

Stephen Axilrod, vice chairman of Nikko Securities in New York, agreed. The trade deficit narrowed sharply between 1987 and mid-1988, he said, but in recent months “we’ve begun flattening. We’re either going to have to weaken demand or lower the dollar.”

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That view is not yet shared by the incoming Bush Administration or U.S. allies, however. Nicholas F. Brady, Bush’s secretary of the Treasury, and West German Finance Minister Gerhard Stoltenberg have indicated that they believe the dollar is at the right level. Japanese officials also agree.

Improvement From Mid-'87

U.S. allies from time to time have urged the Administration to reduce domestic demand, but here, too, top policy-makers have been reluctant to do so. Top Bush advisers have called for continuing economic growth at a robust pace this year despite the trade deficit problem.

Government economists said the November figures indicate that the trade deficit for all of 1988 probably will end up at $136 billion--an improvement of about $35 billion from the peak of $170.3 billion recorded in 1987.

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But most analysts agree that the export boom that the country has been enjoying since early 1987 has begun to taper off and, though exports will remain high in coming months, they are not likely to increase rapidly. “It’s clear that the gain is petering out,” Melton said.

As has been the case for several months, Wednesday’s report showed a mixed performance in the trade area. The bulk of the increase in imports came in purchases of capital goods, which industry here needs to boost its production capacity so that it eventually can export more.

But imports of consumer goods continued to be high, partly reflecting larger-than-expected pre-Christmas purchases by retail stores, while exports of manufactured goods, capital goods and farm products all declined during the month. The volume of oil imports was unchanged.

David Wyss, an economist with Data Resources Inc., a Cambridge, Mass., firm, said the deterioration was “too broad to be accounted for by any special factors. My feeling is not that the trade deficit got worse. It’s just stalled out at around $11 billion.”

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