U.S. Posts Worst Quarterly Trade Deficit Ever

By JAMES GERSTENZANG

Dec. 11, 1996 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

The United States posted its worst overall trade performance in history during the third quarter of calendar 1996, with exports falling for the first time in three years, the government reported Tuesday.

The current account deficit, a comprehensive index that measures exchanges of goods, services, investments and foreign aid, grew nearly 20% to a record $48 billion during July, August and September.

The figures underscore the continued growth of the trade deficit through President Clinton’s first term, even as his administration has pressed its trading partners to purchase more U.S. goods and to open the global economy to less restricted commerce.

With the dollar growing in strength against the Japanese yen and the German mark, the report also demonstrates the price the United States is paying for a more powerful U.S. currency, which makes the nation’s goods and services more expensive for foreign buyers.

At its current rate of growth, the U.S. current account deficit would reach $164 billion by the end of the year. It was $148 billion in 1995. The previous record quarterly deficit was $43 billion, set during the fourth quarter of 1987.

Administration officials said that the difficulties the United States has encountered in closing the gap reflect the strength of the U.S. economy and the struggle its trading partners have encountered in emerging from the global recession earlier in the decade. By this reasoning, sluggish growth in other countries has depressed the foreign market for U.S. goods.

Besides, said Lee Price, the Commerce Department’s chief economist, the growth of the trade deficit appears less alarming when it is calculated as a percentage of the economy. At times during the 1980s, the deficit was equal to about 2.5% of the gross domestic product. Now it is roughly 2% of the GDP.

Nevertheless, the third-quarter report contains troubling elements. One is the 2.1% decline registered in merchandise exports, the first such drop since the same quarter in 1993. “That’s not good,” Price said of the export falloff.

There is little consensus among economists about whether movements in the trade deficit are significant in the short run. But over a longer period, a rising deficit signals a sour market for U.S. goods and services in other countries and limited job opportunities for American workers. In addition, it can lead to higher interest rates: When dollars flow overseas as Americans buy imported goods and services, the United States must attract dollars back by raising rates paid to overseas investors.

“A $48-billion deficit in three months--this is the amount of money the United States has to borrow in a tough market,” said Charles McMillion, an economic consultant who operates MBG Information Services in Washington. “That’s why real interest rates are incredibly high.”

The $51.6-billion deficit in merchandise was partly balanced by the $17.8-billion surplus in services, which includes such items as airplane tickets and other travel fees.

But there is a cloud in that silver lining. “We have a big surplus because Americans have been converted from enormous travelers to enormous hosts, because middle-class Americans cannot afford to travel,” McMillion said.

In the past, the deficit in merchandise has been blamed largely on the nation’s appetite for foreign goods. But consumer expenditures on foreign and domestic products have been relatively modest as the nation has emerged from its most recent recession at the start of the decade.

Such spending has increased by 14.9% in the 22 quarters since the recession ended, compared with spending growth of 26.3% during the same period of recovery after the 1982 recession.

To a degree, the current account balance has been skewed by fluctuations in currency exchange rates--but not to the extent sometimes attributed to it by U.S. officials.

The dollar has strengthened dramatically against the yen, from a weak 80 yen to the dollar, to the current level of about 113 yen.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bad to Worst

The U.S. current account balance, the broadest measure of America’s trade and investment posture with the rest of the world, reached a record deficit in the latest quarter.

Quarterly balance in billions of dollars

1995

II: -$41

III: -$37

IV: -$30.4

1996

I: -$34.9

II: -$40.2

III: -$48.0

****

Third quarter by category (billions)

All services: +$17.8