Free-Spending U.S. Runs Up Record Deficit

Exuberant Americans shopped the planet until they nearly dropped in January while much of the rest of the world kept its wallet firmly in its pocket.

The result, the government announced Thursday, was a record-breaking $17-billion U.S. trade deficit that seemed certain to fuel already simmering protectionist sentiments but was otherwise seen largely as another sign of just how well the nation’s economy is performing.

“Some people will tell you this is bad news, but there is nothing inherently wrong with a weakening trade deficit,” said Mickey D. Levy, chief economist with Bank of America Corp. in New York. “Our exports are declining because of trouble overseas and our imports are rising because of strength here.”

That may prove cold comfort for American steelworkers and others, who charge that cheap imports are threatening their jobs and who demand--with some success--that the government staunch the flow. The House voted overwhelmingly Wednesday to limit steel imports.

But for most people, the huge influx of foreign goods and services is simply an extension of the nation’s eight years of economic happy times.

“Right now, with the economy running strong and employment high, consumers are reaping the benefits of being able to buy a wide variety of things at lower prices,” said Jeffrey J. Schott, a senior fellow at the Institute for International Economics in Washington.

Low-priced imports have contributed mightily to the consistently low inflation rate that has characterized the booming 1990s. The Labor Department reported Thursday that inflation remained in check for another month, as the consumer price index crept up a mere 0.1% in February despite hefty increases on such items as meat, oranges and airline tickets.

To the extent that economists worry about trade deficits, their focus is different from that of politicians and factory workers. Analysts view a deficit as, in effect, a loan from the countries that sell the U.S. more than they buy and accumulate stockpiles of American currency.

“Like any other kind of debt, it’s not bad until you have to pay it back,” said Maureen F. Allyn, a senior economist with Zurich Kemper Investments Inc. in New York. “But you do have to pay it back.”

“It’s a little like putting on weight,” added Nicholas S. Perna, chief economist with Fleet Financial Group Inc. in Boston. “One pound in any given month doesn’t make that much difference. But when the pounds accumulate, you’ve got a problem.”

January’s $17-billion mismatch between the nation’s imports of goods and services and its exports represented a 21% jump over December’s unexpectedly low deficit, according to the Commerce Department. The abrupt increase blew a hole in the theory of some analysts that the December number signaled the beginning of stronger economic growth in countries that are large markets for American products, particularly in Asia, coupled with a slowdown at home.

The January trade figure is right in line with a steady stream of evidence that, far from slowing, the American economy is continuing to boom along with an uncanny mix of high employment, low inflation and the kind of efficiency gains that many economists thought until recently were things of the past.

The $17-billion January deficit topped the previous monthly record of $16.7 billion set last August, and put the economy on track to beat the annual record trade gap of $169.3 billion set last year.

But analysts said the most revealing measure of the trade deficit is its size relative to the national economy. By this measure, last year’s trade gap was less than 2% of the nation’s total economic output, compared with the 3% rate that prevailed in the mid-1980s.

All of the January deficit and then some was accounted for by a mismatch of Americans’ buying and selling of goods. The goods deficit of $23.4 billion was partially offset by a $6.4-billion surplus in the nation’s export of services.

The U.S. trade deficit in goods with China jumped from $4 billion in December to almost $5 billion in January, representing the biggest bilateral trade gap, according to Commerce figures. U.S. exports to China, most of it civilian aircraft and telecommunications equipment, fell while imports, most of it footwear and clothing imports, rose.

China again vaulted past Japan, which ran a $4.7-billion surplus with the U.S. in trade in goods, a decrease of $1.2 billion because of drops in computer, toy and auto sales.

Treasury Secretary Robert E. Rubin acknowledged Thursday that both the trade deficit and the pressure on the administration are likely to grow in coming months.