Sales Spring to Life; Foreign Trade Withers

Consumers spent with abandon in January and February as warm weather and falling interest rates gave the economy a solid push to start the year.

But foreign trade, the economy’s one weak spot, continued to worsen with the 1997 deficit in goods, services and investment posting the second-worst imbalance in history.

Retail sales rose 0.5% in February, propelled by El Nino’s gift of unseasonably warm weather in much of the country that brought shoppers out early to buy spring clothes and garden supplies.

In a second report Thursday, the Commerce Department said America’s deficit in the broadest measure of foreign trade--the current account--widened by 12.3% to $166.4 billion in 1997 as the flow of U.S. investment earnings turned negative for the first time since at least the end of World War II.

The two reports dramatically underscored the powerful but opposite forces influencing the economy--a robust domestic sector that has greater spending power stemming from the lowest unemployment levels in a generation, and a huge and growing trade deficit.

Economists are forecasting that the Asian financial crisis, by causing the deficit to balloon even further, will significantly slow the U.S. economy this year.

However, there has been little evidence of that slowdown so far. In fact, the initial effects of the Asian crisis have proved to be a boon for the economy, pushing interest rates lower as investors sought safe havens in the United States for their money.

The retail sales report sharply revised upward January sales to 1%, a tenfold increase from the original estimate and the biggest gain in six months.

In another report Thursday, the Labor Department said that new claims for unemployment benefits fell by 7,000 last week to 298,000, a sign of continued strength in the labor market.

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Retail Sales

In billions of dollars, seasonally adjusted:

Feb.: $218.1

Source: Commerce Department