Trade Gap Shrinks to $8.82 Billion in August : Economy: Figure is smallest of '95. Gains in auto, aircraft exports help, but merchandise deficit still likely to top last year's.

From Associated Press

The U.S. trade deficit narrowed sharply to $8.82 billion in August, the smallest gap this year, as exports climbed to an all-time high. Big gains in sales of autos and commercial aircraft led the way.

The Clinton Administration hailed the turnaround as welcome news after a string of bad trade reports. But private economists said even with the improvement, the United States is headed for its worst annual merchandise trade performance in history.

The Commerce Department said Wednesday that the August imbalance was the best monthly showing since December and was 21.2% below a revised July deficit of $11.19 billion.

The better-than-expected narrowing reflected a big jump in sales of U.S. autos and parts, commercial aircraft and computer products, which boosted exports of goods and services by 3.7% to a record $65.74 billion. Imports remained near their record highs as well, showing basically no change in August at $74.56 billion.

Even with the improvement, the merchandise deficit for the year is running at an annual rate of $183 billion, topping last year's shortfall of $166 billion. Many analysts predict the 1996 performance will be even worse, reflecting weak economies overseas and higher import prices because of the dollar's slide.

"Our three biggest export markets are Canada, Japan and Mexico, and they are all having lousy years," said David Wyss, economist at DRI-McGraw Hill Inc.

Robert Dederick, an economic consultant for Northern Trust Co. in Chicago, said even though he expects the trade deficit to remain at high levels, the unexpectedly good showing in August will give a boost to overall economic growth.

The economy slowed to a barely discernible 1.3% annual growth rate in the spring. Dederick said the August trade improvement will help to lift the third-quarter rate to about 2.5%, in line with the Federal Reserve Board's target for this phase of the economic expansion.

Financial markets were buoyed by the news. The U.S. dollar posted gains against both the Japanese yen and the German mark.

Forecasts of record trade deficits this year and next could present political headaches for President Clinton, who has pursued various market-opening trade agreements as a key component of his foreign policy.

Some Republican presidential opponents charge that the soaring trade deficit proves that the Administration's approach has been wrong and resulted in the loss of thousands of American jobs to low-wage competitors.

But U.S. Trade Representative Mickey Kantor said the continued growth is U.S. exports shows that the Administration's drive to open more foreign markets is working.

"While today's announcement demonstrates real progress, there is much that remains to be done to improve the U.S. trade situation," Kantor said in a statement.

The United States suffered a record deficit of $3.93 billion with China in August. That was the highest monthly deficit the United States has ever recorded with any country other than Japan and was 17.9% above the July imbalance. Commerce Secretary Ronald H. Brown, completing a trip to China, said he stressed during his meetings in Beijing the firm commitment of the Administration to "a more balanced economic relationship."

As usual, America's largest deficit was with Japan, at $5.11 billion. While August marked the fifth straight month that the deficit with Japan has declined, the imbalance for the year is still running above last year's record pace.

One of the factors that has held back growth in U.S. exports has been the economic catastrophe that has plunged Mexico into a deep recession, cutting into growth in what is America's third-largest export market. But for August, the deficit with Mexico narrowed by 15.5% to $1.08 billion as U.S. exports enjoyed a rebound. The Administration is hoping Mexico's recession is bottoming out and that growth will return next year.

America's crude oil imports edged down to $3.59 billion in August as the price per barrel declined slightly to $15.31 and volume edged down to an average of 7.57 million barrels a day.


U.S. Trade Defict

Deficit in goods and services, in billions of dollars: -$8.82 (August 1995)

Source: Commerce Department

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