Turnaround Hopes Fade as Trade Deficit Climbs
The U.S. merchandise trade deficit increased to $10.5 billion in February, the Commerce Department reported Friday, chilling hopes that the nation’s trade performance would pick up again after being stalled for the past year.
The trade deficit for the first two months of the year represents an annual rate of about $115 billion, a slight improvement over the $119.8-billion deficit for all of 1988.
The devaluation of the U.S. dollar caused the nation’s trade deficit to fall last year from a record $152.1 billion in 1987. But the gains ended about a year ago, and economists said the February trade figures indicated that additional improvement is not yet in sight.
“The trade deficit continues to look sticky, and last year’s improvement has stalled out,” said Allen Sinai, chief economist at the Boston Co.
“So long as we keep importing, the trade deficit can’t improve very much, and that has been the pattern for some time,” Sinai said. “For it to get better, we’ll need either a slower economy with fewer imports, or a lower dollar and some other improvement in our competitiveness abroad to get higher market share and exports. But that can be long in coming.”
The merchandise trade deficit for January was revised downward to $8.7 billion from the original estimate of $9.5 billion. The combined January-February deficit of $19.2 billion compares with $23 billion during the same period last year.
Exports of American goods to foreign buyers improved somewhat in February, continuing a trend that began a year ago, but imports of foreign goods increased by an even bigger amount.
Exports were $28.9 billion for the month, up slightly from $28.7 billion in January. But imports were $39.4 billion in February, a $2-billion jump from the previous month’s $37.4 billion.
As in previous months, the principal imports were not consumer goods but capital goods and industrial materials, suggesting that the import binge decried by politicians does not reflect reckless consumer spending as much as it does business investment for future growth.
Imports of capital goods and factory materials totaled $16.1 billion, just over half of all imports. A $1-billion increase in capital goods imports in February accounted for almost half of the monthly increase for all imports.
Economists noted that in the long run, those purchases could pay off by increasing the efficiency of U.S. business, perhaps restoring the competitiveness of American manufactured goods in foreign markets.
“All those capital goods imports are bad news in that they add to the trade deficit,” said Irwin L. Kellner, chief economist at Manufacturers Hanover in New York. “But they are good news in that they make business more efficient, which should help the deficit in the long run.”
But without additional declines in the value of the dollar against foreign currencies, economists said only minor fluctuations can be expected for the foreseeable future.
“We’ve been on the same trade plateau since last May, with an average deficit of about $10 billion, or a bit less, a month since then,” said Bruce Steinberg, a senior economist at Merrill Lynch in New York.
“That’s likely to continue to be the case for most of the rest of the year,” Steinberg said. “We won’t get much further improvement until domestic demand drops and imports fall substantially.”
Kellner, the Manufacturers Hanover economist, said that despite the slight gain in February, U.S. exports “seem to have plateaued” in recent months. “The dollar is again making us uncompetitive abroad,” he said.
Roger Brinner of Data Resources Inc. in Lexington, Mass., predicted that the next major break in the trade situation is likely to come when a combination of a sliding dollar and a slowing economy begins to cut substantially into imports of capital goods.
“In fact, we see that slowing down this year,” Brinner said. Data Resources projects that business investment will increase this year at a rate of 5% after inflation, compared to more robust expansion of 13% in 1988.
“That boom is just about over and that should translate into a deceleration in the growth rate of imports,” Brinner said. “As our economy slows, foreign producers are going to have to bear a share of the burden--just as they profited when our economy was expanding.”
One anomaly in the February trade picture was a $300-million decline in petroleum imports, despite a 4% increase in the cost of crude oil for the month. In terms of volume, that meant that February imports of 215,000 barrels of petroleum were 11% below January imports, unusual for a winter month.
May Be Statistical Quirk
Kellner, for one, warned that the decline may turn out to have been a statistical quirk that will reverse itself with a vengeance when the import statistics for March are reported a month from now.
February trade figures involving America’s principal trading partners continued the mild fluctuations of recent months. The chronic deficit with Japan advanced to $4.7 billion in February, from $3.5 billion in January. The deficit with Canada fell to $800 million from $1.8 billion, while a rare January surplus of $46.5 million with Western Europe reverted to a deficit of $600 million in February. The monthly deficit of about $1 billion with Taiwan was virtually unchanged.
The trade figures for individual trading partners were not seasonally adjusted.
