Trade Deficit Shrinks, but Analysts Call Dip Temporary
The nation’s foreign trade deficit narrowed in June for the first time in eight months, the government said Wednesday. But analysts said the shrinkage is likely to be temporary and does not signal any long-term improvement in the trade picture.
Commerce Department figures show that imports exceeded exports by only $8.2 billion during the month, down from a revised $9.5 billion in May, but still high by historical standards. Imports declined slightly from May levels, and exports surged to a record high despite the strong dollar.
Though the deficits with China and Japan continued to worsen, the U.S. imbalance with Mexico fell to $1.2 billion in June, from $1.7 billion in May. U.S. exports to Mexico surged by a record $5.9 billion, reflecting continued improvement in the Mexican economy.
Analysts said the better-than-expected performance is likely to push the economy’s overall growth rate for the second quarter of this year above the annualized 2.2% of preliminary estimates--possibly even to a 3% to 4% pace.
Trade is one of the components that make up the gross domestic product, the value of all goods and services the United States produces. In the first quarter, the economy grew at a 4.9% annual rate--a pace policymakers worried was too rapid to keep inflation in check.
Although the Federal Reserve Board passed up a chance to raise interest rates on Tuesday, the central bank has warned that it will not hesitate to do so if the economy does not slow down. The Fed is aiming for an overall growth rate of 2% to 3% a year.
Despite the June trade figures, analysts say they expect the deficit to widen again in coming months, possibly reaching $130 billion this year--a sharp increase from the $115 billion posted for 1996 and one of the largest on record.
“The improvement this month isn’t likely to stay with us for very long,” said Cheryl R. Katz, an economist with Merrill Lynch. She agreed that the trade deficit is likely to swell further over the next several months. “What happened in June was a deviation.”
Economists say one of the major reasons the trade deficit is so large is that the U.S. economy is growing faster than those of its major trading partners. So American businesses and consumers are buying more imported goods and services, and foreigners are buying fewer U.S. products.
Accordingly, the White House welcomed the June figures. On Martha’s Vineyard, Mass., where President Clinton is vacationing, Deputy Press Secretary Barry Toiv said Clinton was pleased with the report, calling it “a sign of continued growth in the economy.”
Nevertheless, the size of the U.S. trade deficit is expected to be a major element in the debate over the administration’s new request to Congress for “fast-track” legislation that would give the White House authority to negotiate new trade pacts with Chile and other countries.
Some lawmakers are unhappy with the North American Free Trade Agreement, which has been sharply criticized by labor leaders and environmentalists and is expected to be the model for any trade agreements the administration negotiates with Chile.
The surge in exports to Mexico is one turnabout that could help the administration politically in coming weeks. The June figures also show improvements in the deficit with the other NAFTA partner, Canada; the gap edged down to $1.4 billion, from $1.5 billion in May.
At the same time, however, in another sore point for the administration, the U.S. trade deficit with China worsened over the month, jumping to $4.3 billion--the second-highest level on record--from $3.8 billion in May. The deficit with China exceeded the deficit with Japan for the fourth time in history.
The trade deficit with Japan also widened in June, rising to $4.05 billion, from $3.6 billion in May, mainly as a result of increasing U.S. purchases of Japanese automobiles, as the rise in the value of the dollar against the Japanese yen made imports from that country cheaper.
Wednesday’s report shows that overall, U.S. imports declined during June, dropping by 0.7%, or $600 million, to $86.58 billion--their first decline in eight months. Exports surged by 0.9%, or $700 million, to a record $78.42 billion.
The figures indicated that the major factor in the decline in imports was a falloff in U.S. foreign petroleum purchases, reflecting a stockpiling of oil in U.S. reserve tanks following last year’s shortage.
Exports rose in virtually every sector of the economy, particularly in capital goods.
