Import Surge Drives Up Trade Deficit

The U.S. trade deficit soared 27% to $8.92 billion in March as imports hit an all-time high and exports shrank as struggling European economies bought fewer American-made goods, the Commerce Department reported Friday.

Meanwhile, separate data on consumer confidence, also released Friday, suggest the economy is not overheating and that inflation is not an immediate problem.

The University of Michigan’s midmonth index report on consumer sentiment, which is not released publicly but is widely followed on Wall Street, fell to 89.9 from 92.7 in April, economists familiar with the numbers said.

News of declining consumer confidence drove stock prices higher and bond yields lower, as investors reasoned that reduced inflationary pressures would further discourage the Federal Reserve Board from raising interest rates when its policy-setting committee meets Tuesday. The Dow Jones industrial average on Friday rose 52.45 points to close at 5,687.50, just shy of a record high. The yield on the benchmark 30-year Treasury bond dropped to 6.83% from 6.92% late Thursday.

Some market strategists had expected consumers to be more optimistic after an April report by the Conference Board, released three weeks ago, showed soaring consumer confidence in the economy. But the fresh sign of consumer pessimism reinforces other recent signs that inflation pressures remain subdued. It was particularly welcomed, coming as it did after reports released Thursday suggested strength in employment, housing and mid-Altantic business conditions.

“The economy is not poised for an upside breakout in growth,” said Michelle Laughlin, an economist at the Sanwa Securities unit of Tokyo-based Sanwa Bank Ltd.

The trade report from the Commerce Department said the deficit in goods and services was 26.8% higher in March than in February, and the politically sensitive trade gap with Japan widened by 5.5%.

The Clinton administration said the March deterioration is an aberration, but many private economists disagreed, predicting that the U.S. will see more similarly poor figures in coming months.

The March trade deficit was worse than the $8 billion analysts had been expecting, but that was partly a reflection of a new method of tracking exports that lowered the initial estimate for February but made March look worse than it otherwise would have.

The government report shows U.S. exports of goods and services were down 0.8% in March to $68.8 billion but that imports climbed 1.7% to an all-time high of $77.72 billion as foreign shipments of goods and services set records.

Commerce Secretary Mickey Kantor dismissed the March deterioration as a temporary departure from a trend of improving trade figures that has been evident since the last half of 1995. “Today’s figures are consistent with other recent data demonstrating the overall strength of the American economy,” he told reporters.

But private analysts said the deficit for the first three months of the year is a worrisome 17.6% higher than for the last three months of 1995.

“The monthly numbers looked much better in the second half of last year, and many people hoped it was the start of a major decline in our trade deficit. But that is clearly not the case,” said Lawrence Chimerine, chief economist at the Economic Strategy Institute, a Washington think tank.

The trade deficit for all of 1995 rose to a seven-year high of $111.5 billion as a steep deterioration in the first half of the year was only partly offset by improvements in the second half.

Chimerine said the 1996 imbalance will probably show little if any improvement from ‘95’s performance.

The big jump in March imports reflects rising demand for computer chips, industrial machinery and chemicals. Autos and auto parts, the biggest import category, actually dipped 6.9% to $10.02 billion, but U.S. exports of cars and parts were down as well, falling 11.3% to $4.84 billion. That left a deficit in the automotive areas of $5.2 billion.

* STOCKS SOAR: The Dow flirts with a record for the first time since early April. D2

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U.S. Trade Deficit

Overall deficit in goods and services, in billions of dollars:

March, 1996: -$8.92

Source: Commerce Department