U.S. Trade Deficit Shrinks in Quarter as Exports Rise

The U.S. trade deficit narrowed to $27.7 billion from April through June, the best showing in more than four years, as a record level of exports overcame a big surge in America’s foreign oil bill, the government reported Monday.

The Commerce Department said the 2.3% drop in the trade deficit during the second quarter marked the second consecutive quarterly decline. The deficit had fallen an even sharper 11.4% in the first three months of the year to $28.38 billion.

The April-June improvement came from a 3.4% increase in exports, which climbed to an all-time high of $90.87 billion. This more than offset a 2% rise in imports, which also set a record at $118.58 billion.

Rising Oil Demand

Many analysts are concerned that the rapid growth in exports, which provided much of the momentum for overall economic activity last year, has already begun to slow under the impact of a rise in the value of the dollar.

A stronger dollar makes American goods less competitive on overseas markets while making imports cheaper in the United States.

Rising demand for imported oil is also expected to make the deficit worsen in the second half of the year. While non-oil imports actually fell in the second quarter, oil imports shot up by 23.8%.

“This is the end of the good news on trade,” said Michael Evans, head of a Washington forecasting firm. He and other analysts predicted that the deficit would widen slightly in coming months.

Down During Half

“With the dollar having risen so much in the last 18 months, export growth has slowed while import growth remains fairly strong,” said David Wyss, an economist with DRI-McGraw Hill.

For the first six months of the year, the trade deficit is running at an annual rate of $112.2 billion, down almost 12% from the 1988 deficit of $127.2 billion.

Evans said he expected that the deficit would show only a marginal improvement for the whole year, and he predicted that the trade deficit would actually begin to rise again in 1990 as the dollar’s increase eats further into export growth.

Monday’s report on merchandise trade as calculated on a balance of payment basis confirmed an improvement already noted in the Commerce Department’s monthly merchandise trade reports.

The totals from the two reports vary slightly because the balance of payments report excludes military sales by the U.S. government and makes other minor adjustments to the monthly figures.

U.S. TRADE DEFICIT Quarterly balance in billions of dollars. Numbers are rounded. 1988 2nd: $33.5 3rd: $32.3 4th: $28.7 1989 1st: $28.4 2nd: $27.7 Source: Commerce Department