The U.S. merchandise trade deficit tumbled 13.7% in January, reversing a worrisome two-month trend in one of the nation’s more closely watched economic indicators, the federal government reported Wednesday.
The decline to $9.49 billion was larger than analysts had expected and was hailed additionally because it reflected a big drop in imports of foreign manufactured goods.
“A double-barreled blast of good news,” said Irwin L. Kellner, chief economist at Manufacturers Hanover in New York.
Analysts said that they saw the drop as a welcome signal of reduced demand for consumer goods, potentially allowing the economy to slow down before it reaches the overheating point. While the report also cited a further slowdown in once-booming exports of U.S.-made manufactured goods, some economists said that this may relieve inflationary pressures on industries already running at full capacity.
In the Bush Administration, official reaction was more restrained but still upbeat. Statements by Commerce Secretary Robert A. Mosbacher and Carla Anderson Hills, the U.S. trade representative, termed the statistics “encouraging,” with Mosbacher promising government action to promote increased American exports abroad.
Sees Favorable Trend
White House spokesman Marlin Fitzwater said the narrowing of the trade gap shows that “the overall trend in the trade balance continues down on a long-term course.”
Some economists urged caution in interpreting the January drop, saying that the trade improvement may not continue for long. Michael Evans, head of a Washington economic forecasting firm, noted that prices of imported oil are rising and told reporters that “the January report is going to be the last reduction we get in our trade deficit for quite some time.”
Indeed, oil imports were up substantially in dollar terms in January as the price rose to an average of more than $14 a barrel, even while the daily volume of imported oil declined. U.S. crude oil prices closed at their highest level in 16 months Tuesday, with the benchmark U.S. crude, West Texas Intermediate, priced at $19.29 a barrel.
But imports of almost everything else were lower and most analysts stressed that aspect of the picture.
“The one-month result was very encouraging, particularly because the big improvement was the drop in non-oil imports,” said Allen Sinai, chief economist at The Boston Co. Economic Advisers in New York. “One month is not a trend, but you can only interpret this as meaning that Americans are at last buying less from overseas.”
He noted that recent economic reports suggesting a slowdown in retail sales, slightly higher domestic savings and slower jobs growth in manufacturing all point toward a welcome slowdown in economic growth and less inflationary pressure.
Another hint of better things to come on the import side came from the fact that smaller purchases of autos and manufactured goods, generally from Western Europe, dramatically reversed a deficit of $1.2 billion in December. That category posted a rare surplus of $46.5 million--the first such surplus since September, 1983. The chronic deficit with Japan fell from $5.1 billion in December to $3.5 billion, the smallest since June, 1986.
Noting that small surpluses or parity had been the norm in U.S. trade balances with Western Europe until the huge dollar appreciation of the early 1980s, Robert F. Wescott of Alphametrics Inc., a Philadelphia forecasting firm, speculated that lasting improvement may be on the horizon.
The January Commerce Department report “may suggest that the mid-1980s were an aberration, which is finally unwinding and that our manufacturing industries are on the road back to parity competitively, at least as far as Europe is concerned,” he said.
He added: “There is no doubt in my mind that the graph of the trade deficit is trending downward, not going up as some fear, or flat, as many say.”
With the January trade report, the Commerce Department reverted to its pre-1979 practice of measuring merchandise imports by the actual goods clocked into the country, rather than adding on the cost of shipping and insurance, as Congress had mandated after that year. That requirement, which inflated the value of imports and gave added impetus to industries seeking protection from foreign competition, was repealed in the omnibus trade bill last year.
Under the old measure, the trade deficit in January would have been counted at $11 billion, down from an upwardly revised December deficit of $12.6 billion.