IMPACT OF THE FALLING DOLLAR : Turmoil in the Markets : U.S. Trade Gap Surges 22%, Sparking New Rate Hike Fears

By DAVID W. MYERS

June 22, 1994 12 AM PT

TIMES STAFF WRITER

The nation’s monthly trade deficit soared 22% to $8.4 billion in April, the Commerce Department said Tuesday, as Americans’ appetite for foreign-made goods reached record levels but sluggish economies overseas continued to hurt demand for items and services offered by U.S. companies.

April’s trade gap was larger than most analysts had expected and left the deficit running at a $133.5-billion annual rate--putting the United States on track to suffer its worst trade imbalance since a record $152.1-billion shortfall in 1987.

The report put even more pressure on the shaky U.S. dollar and resurrected fears that the Federal Reserve Board may raise interest rates again soon in an effort to prop up the battered greenback while keeping a lid on inflation.

The dollar has been generally weak against most major foreign currencies for months. A falling dollar usually boosts America’s export business because it makes U.S.-made goods cheaper for foreign customers to purchase.

But U.S. manufacturers have yet to benefit much from the dollar’s latest slide because many of America’s chief trading partners--including Japan and most European countries--have been suffering from prolonged recessions.

“The drop in the dollar hasn’t helped us much, because people and companies overseas just don’t have much money to spend on anything,” said Gladys Moreau of the Export Small Business Development Center, a Los Angeles-based trade group that helps small U.S. companies trying to expand their foreign sales.

Overall, U.S. consumers in April spent $8.4 billion more on foreign goods and services than they sold to overseas customers, up 22.1% from a $6.87-billion shortfall in March.

Still, Moreau and most other experts said there is no reason to panic over Tuesday’s trade gap report.

Though U.S. exports declined a steep 4.2% in April from March, to $40.29 billion, analysts noted that nearly half the decline stemmed from an unusually large drop in sales of non-monetary gold. Sales of the gold, which is primarily used to make jewelry, had soared the month before.

And though the value of imports in April climbed 0.2% from March to a record $53.6 billion, the increase was caused by a sharp jump in oil prices rather than an upswing in overall purchasing trends.

“The numbers really aren’t as bad as they look,” said Stephen Cooney, international trade analyst for the National Assn. of Manufacturers in Washington. “All things considered, the manufacturing sector looks poised for a strong second half of the year.”

Despite the widening trade gap, Cooney noted that exports in the first four months of 1994 were running 6% ahead of the same period last year.

More important, he said, Germany’s economy is on the mend and Japan is showing signs of pulling out of its recession.

“Manufacturers here in the U.S. should see business pick up as Japan and the European countries get back on their feet and start buying our products again,” Cooney said.

Analysts say the nation’s home building boom has apparently peaked and that consumer spending is on the wane, so its manufacturing sector will have to improve if America hopes to prolong its economic expansion that began more than two years ago.

A weak dollar should ultimately benefit U.S. manufacturers by making their goods cheaper for foreign consumers to purchase, analysts said.

“But a weak dollar also raises inflationary pressures, because it can cause American consumers to pay higher prices for imports and also encourage domestic manufacturers to institute price hikes of their own,” said Gary Ciminero, chief economist of Fleet Financial Bank in Providence, R.I.

As a result, Ciminero and some other analysts said, Tuesday’s report could put more pressure on the Federal Reserve Board to raise short-term interest rates for a fifth time this year in its efforts to cool the economy and keep inflation in check.

* DOLLAR SHOCK: Dollar falls amid rate hike fears. A1

MARKETS REEL: Stocks in another losing session. D3

The U.S. Trade Deficit Balloons. . .

U.S. trade deficit in billions of dollars:

April 1994: -8.4

. . . Putting Pressure on the Dollar. . .

Dollar in German Marks

Weekly closes in New York, except latest (June, 1994):

Tuesday: 1.594

Dollar in Japanese Yen

Weekly closes in New York, except latest (June, 1994):

Tuesday: 100.35