Trade Deficit Jumps Sharply in Third Quarter : Economy: High oil prices and military spending lead to 13.9% hike, reversing an encouraging trend.

From Associated Press

The deficit in the broadest measure of foreign trade widened sharply to $25.59 billion in the July-September quarter, the worst showing since late last year, the government reported today.

The 13.9% jump in the deficit was blamed on the fallout from the Persian Gulf crisis, which drove up the price Americans pay for imported oil and also boosted the country’s spending on overseas military operations.

The Commerce Department said the third-quarter deficit in the country’s current account trade deficit compared to a $22.49-billion deficit in the second quarter. It was the widest imbalance since a deficit of $26.69 billion in the October-December quarter of last year.

The improvement in the country’s trade deficit had been the one bright spot in a generally lackluster U.S. economy. Improving export sales had provided more than half of overall growth this year.


However, analysts are now worried that a widening trade deficit will be one more drag on an economy many believe is already in a recession. They fear that if the gap between U.S. exports and imports widens significantly it will worsen the severity of the recession.

The current account is the country’s most important trade statistic because it measures not only trade in merchandise but also trade in services and investment flows between countries.

The big deterioration in the third quarter came from a sharply higher merchandise deficit, which climbed 28.9% to $29.75 billion, compared to a deficit of $23.10 billion in the second quarter.

More than one-half of the increase in imports stemmed from higher petroleum prices following Iraq’s Aug. 2 invasion of Kuwait.

The balance on investment earnings shifted into a surplus of $2.46 billion, reflecting improved earnings by Americans on their overseas investments. This had been in deficit by $1 billion in the second quarter.

The United States also ran a surplus in the services category of $5.82 billion in the third quarter. This reflected a drop of 2.8% from the second-quarter figure of $5.98 billion.

The current account is the trade statistic that is most closely watched by economists because it shows the amount of borrowing the United States must do each quarter to finance the shortfall between imports of goods, services and investments and exports in those categories.