Trade Gap Hits 5-Year Low : 30% Drop in 3rd Quarter Reported

The nation’s trade deficit shrank nearly 30% to $22.7 billion during the July-September quarter, its lowest level since the beginning of 1984, the Commerce Department reported today.

The drop occurred as the category in the current account deficit covering income on U.S. investments abroad surged upward.

But the big drop was largely the result of a fluctuation in the international exchange value of the dollar, which inflated U.S. investment earnings in foreign countries by $7.6 billion, the department said.

The current account deficit is the most comprehensive of trade statistics because it includes trade in merchandise as well as services, which reflects the flow of investment income such as interest and dividends between nations.

In a second economic report today, the government said retail sales rebounded in November on the strength of stronger-than-expected Christmas buying and less chance of a recession.

The 0.8% increase was the biggest in four months, and many economists saw it as a signal of a lessening chance of a recession. (Story, P3)

In its trade report, the Commerce Department said the current account deficit ran at an annual rate of $113.5 billion for the first nine months of the year compared with a shortfall of $126.5 billion for 1988.

The $22.7-billion third-quarter deficit was the smallest since a $20.9-billion deficit in the first three months of 1984 and compared with a revised $32.1-billion deficit in this year’s April-June quarter.

A rising dollar during the April-June quarter was blamed for depressing investment earnings in the second quarter, when the country registered a $1.66-billion deficit in the services category. That was the first services deficit in 30 years.

Private economists, however, cautioned that the big swing of the services category back into surplus is likely to be only temporary. Many analysts forecast that the services category will be in deficit throughout the 1990s, reflecting the fact that the United States is now the world’s largest debtor nation.

Simply put, that means that foreigners now own more in U.S. assets than Americans own overseas. America’s net debtor position stood at $532.5 billion at the end of last year and is expected to worsen by an additional $100 billion this year.

Many economists are predicting that U.S. living standards will begin to decline because financing the growing foreign debt burden will mean that less money will be available for productive investment in this country.

Meanwhile, the trade deficit in merchandise inched upward to $27.8 billion during the third quarter from $27.6 billion in the second quarter.

U.S. exports rose $200 million to $91.6 billion while imports rose to $119.3 billion from $119.0 billion.

U.S. investors nearly doubled their net purchases of foreign securities to a record $10.1 billion in the third quarter from a then-record $5.7 billion in the second quarter. The record before that had been $1.9 billion in the first three months of 1986.