Broad U.S. Trade Measure Reflects Widening Deficit

WASHINGTON — The deficit in the broadest measure of U.S. trade widened sharply in the first three months of the year as improved sales of American merchandise were swamped by a deterioration in the country’s investment balance sheet, the government reported Tuesday.

The Commerce Department said the deficit in the current account, which had fallen for two consecutive quarters, jumped 7%. Analysts viewed the setback as evidence of how severe America’s trading problems are.

The government reported separately Tuesday that retail sales, held back by weak auto and department store sales, rose a slim 0.1% in May.

The current account, also known as the balance of payments, is the most important trade statistic because it measures not only trade in merchandise but also transactions in services, primarily investment flows between countries.

For the first three months of the year, the merchandise portion of the deficit showed a marked improvement, narrowing by 13.7% to $27.63 billion, the smallest deficit for merchandise trade in four years.

But that improvement was offset by a steep drop in the services category, which fell to a surplus of $369 million from a surplus of $8.36 billion in the fourth quarter of 1988.

Most of the first-quarter decline was blamed on the rising value of the dollar, which lowers the profits of U.S. companies operating overseas because their foreign earnings buy less when they are changed back into dollars.

Beyond the currency movements, analysts said the trade report was disturbing because it reflected that the United States, once the world’s largest creditor nation, is now its largest debtor.

That means that foreigners now own more in investments in the United States than Americans hold in overseas investments. The total excess of foreign holdings is estimated to have risen above $500 billion last year, although the government’s official accounting of the U.S. net debtor status will not be released until June 29.

Many economists believe that America’s standard of living will deteriorate in coming years as the country is forced to transfer more and more of its wealth into foreign hands to service its foreign debt.