Gulf War Payments Swell Trade Figures for 2nd Quarter in Row

Record foreign sales and payments by Gulf War allies helped the United States post its first back-to-back trade surpluses since 1982 in the first two quarters of the year, the Commerce Department said Tuesday.

The nation’s surplus of trade with the rest of the world in goods, services andtourism was $2.97 billion in the April-June quarter, the department said. It was $10.5 billion in the first quarter.

Not since the first and second quarters of 1982 has the country had two consecutive three-month periods when it recorded a surplus in its current account.

The current account is considered the most important trade statistic because it tracks not only the flow of merchandise between countries but also earnings on foreign investments and payments for services such as tourism.

Analysts cautioned that the balance would worsen later in the year because the foreign cash will dry up and consumer demand for imported products will revive as the economy strengthens.

“We view this as the best it’s going to get, and it likely will deteriorate fairly sharply in the third and fourth quarters,” said Chris Varvares, an economist with the St. Louis-based forecaster Laurence Meyer & Associates.

War-related cash payments to the Treasury from foreign governments in the Middle East and elsewhere had the biggest impact on trade. They were agreed to as part of America’s primary role in ousting Iraq from Kuwait earlier this year.

“The level of the surplus continued to reflect the large impact on net unilateral transfers of cash contributions from coalition partners in Operation Desert Storm,” the department said. “These contributions decreased sharply in the second quarter and more than accounted for the decrease in the surplus.”

Even though the Desert Storm payments are winding up, analysts believe that a combination of forces will help give the United States its lowest current account deficit this year since 1982.

Many analysts predict that this year’s current account deficit could dip to $20 billion or less as the allied war payments and lower imports resulting from the U.S. recession make a dramatic improvement from last year’s $92.12-billion deficit.

David Wyss, an economist with DRI-McGraw Hill, was even more optimistic than most economists, predicting that the deficit could fall to a small negative of $6 billion this year.

“We are forecasting that the current account will be close to balance,” Wyss said.

But Wyss and other analysts said the deficit would begin to balloon again in 1992, climbing to about $68 billion as an improving U.S. economy boosts demand for foreign goods.

“Much of the improvement in the current account is due to the recession and as we come out of the recession, imports will turn up,” said Bruce Steinberg, senior economist at Merrill Lynch in New York.

Varvares said he anticipated that the current account deficit would rise again in 1992 to about $65 billion.

During the first 10 months of the current fiscal year that began last Oct. 1, the United States has received $41 billion from its war allies.

But exports also continued to be a strong point for the economy, as they were throughout the recession that began in mid-1990 and as a gradual recovery has begun.

The recession also suppressed Americans’ appetites for foreign-made goods such as Japanese cars and televisions, further aid to the trade balance.

Foreign sales were a record $104.11 billion between April and June, up from $100.90 billion in the first quarter. As a result, the merchandise trade deficit shrank to $15.62 billion from $18.39 billion in the first three months of 1991.

The trade deficit with the rest of the world shot to record levels during the booming 1980s, causing billions of dollars to be sent overseas to pay for imported goods. The money came back as foreign investment, which also had the effect of transforming the country into the world’s largest debtor.

But in the second quarter, the United States also had an overall surplus on its foreign investments, though it was down to $2.46 billion from $4.88 billion in the first quarter.

The surplus on service transactions went up to $7.97 billion between April and June from $7.07 billion in the first three months of the year.

The main reason for the pickup in services income was because people began traveling and buying airline tickets again after having curbed their travels sharply during the Gulf War.

U.S. Current Account The broadest measure of U.S. foreign trade Quarterly balance in billions of dollars 1990, 1st Quarter: 22.7 1990, 2nd Quarter: 22.2 1990, 3rd Quarter: 23.9 1990: 4th Quarter: 23.4 1991: 1st Quarter: 10.5 1991: 2nd Quarter: 3.0 Numbers are rounded Source: Commerce Department RELATED STORY: D2