Trade Deficit Jumps 31%; Dow Loses Ground, Off 18 : Imports Soar 6.4% in August

The U.S. trade deficit jumped to a new peak for the year in August, climbing a surprising 31% to $10.77 billion as imports surged to record levels, the Commerce Department reported today.

The August deficit was the biggest since December’s $10.80-billion gap, and far exceeded economists’ expectations for a $9-billion shortfall.

Led by a sharp increase in factory equipment, imports soared 6.4% to a record $41.18 billion, while exports dipped slightly to $30.41 billion during August.

“It’s a very bad number, and I don’t see any particular offsetting saving graces,” said Geoffrey Dennis, chief international economist at James Capel Inc. “It indicates that progress is needed on the trade front.”

In another sign of slumping trade, the department revised the July deficit upward to $8.24 billion from a previously reported $7.58 billion.

Analysts said the poor figures reversed signs earlier this year that the trade deficit, while still a serious problem for the economy, was on the mend.

White House spokesman Marlin Fitzwater called the August trade deficit “an unwelcome increase,” but voiced the hope that it was a temporary phenomenon.

“We’re hopeful it’s a one-month situation,” he told reporters, also noting that the deficit has been declining in recent months, and declared that the economy is sound.

Jittery currency traders, surveying fresh signs of weakness in the U.S. economy, sent the dollar tumbling to 1.85 West German marks from 1.87 at Monday’s close.

Continued poor trade numbers may lead authorities to try to push the dollar down to make exports more competitive abroad.

Separately, the Federal Reserve reported today that industrial production fell by 0.1% in September in the first decline since February, a sign of manufacturing weakness.

The broader trend for the trade deficit, the three-month running average, also showed a disturbing rise in August, the first since May.

“Every time we think we’ve got this problem licked, it comes back and slaps us in the face,” said economist Robert Dederick at Northern Trust Co.

Until last spring, overseas demand for American goods has stimulated industry. But economists agree that export growth will be difficult this year because of the dollar’s rise and a slight slowdown in overseas economic growth.

“Exports haven’t grown much for five months now,” said Kevin Logan, chief financial economist at Swiss Bank Corp.

However, imports leaped in August, led by a 14% jump in capital equipment imports and a 9% rise in automobiles during the month.

Commerce Secretary Robert A. Mosbacher saw some good news in the rise in capital equipment imports. “This increase supports growing capacity in the manufacturing sector,” he said.

The deficit with Canada, the largest U.S. trading partner, more than doubled to $1.16 billion in August from $471 million.

The trade deficit with Western Europe declined to $717 million from $850 million, and the gap with Japan--still the largest of any single nation--was flat at $3.98 billion against $4.04 billion in July.