U.S. Trade Deficit Drops by $8.4 Billion

The nation’s trade deficit narrowed by a record $8.4 billion in September, largely because of payments that foreign insurers started pumping into the U.S. economy because of the terrorist attacks, the government reported Tuesday.

Analysts said the trade figures, along with an analysis showing the worst decline in California exports in more than five years, also stem from a global recession that is reducing commerce. In addition, the reports reflect a short-term disruption in freight shipments after the Sept. 11 attacks.

The California report showed the state’s product exports falling 19.4% in the third quarter, mainly because of slumping sales of computers and electronics equipment. Nationally, merchandise exports fell 12.8% during the July-through-September period.

“Because of our high-tech emphasis here, we’re a little worse off than the rest of the nation,” said Ted Gibson, chief economist for the California Department of Finance.

But the national trade report from the Commerce Department for September mainly was gloomy too. Americans spent less overall on foreign goods and services during the month, but foreigners likewise bought less from this country.

The reason September’s deficit, at $18.7 billion, was so much lower than August’s shortfall of $27.1 billion was that the nation’s imports fell off much more sharply than its exports.

It marked the biggest decline in the trade gap since the government started keeping such statistics in their current form in 1992, and it was the narrowest monthly deficit in 21/2 years. In September, imports totaled $96 billion, down $15.6 billion from the month before, and exports totaled $77.3 billion, off $7.2 billion from August. Those figures reflect a $10.2-billion jump in the nation’s services surplus that includes payments expected from foreign insurance concerns, including Lloyd’s of London, to cover damage from the Sept. 11 attacks. That increase in the services surplus more than offset a widened deficit in the merchandise trade deficit.

Leaving aside the immediate impact of the terrorist attacks, analysts said, the underlying economic situation depicted in the report was discouraging. “It’s the same story globally, nationally and in California. We’re seeing weak business investment, which is hurting demand for computer equipment, industrial machinery and electrical equipment,” said Scott Anderson, an economist with Wells Fargo & Co. in Minneapolis.

Acknowledging that the U.S. slowdown is spreading, the Organization for Economic Cooperation and Development predicted Tuesday that its 30 member nations will average 1% growth in 2002, versus the 2.8% forecast in May. The terrorist attacks have “inflicted a severe shock to the world economy,” the Paris-based economic organization said in its twice-yearly economic outlook report.

The exports report for California, by virtue of covering a three-month period, was less affected by the aftermath of the terrorist attacks than were the U.S. trade figures. But analysts said the California statistics reflected the slowdown that the state and nation had entered even before Sept. 11.

California’s 19.4% decline compared with its third-quarter results a year earlier, when the state economy still was enjoying a technology-based boom, marked the steepest decline since state officials started keeping export records in roughly their current form in 1996. The quarter’s export total was $25 billion.

For the first nine months of the year, California’s product exports totaled $82.3 billion, down 5.1% from the same period last year.

“The weak technology sector in the state has really become a drag on the state’s economy,” said Keitaro Matsuda, an economist in San Francisco with Union Bank of California. He added that California appears to be following the nation in falling into a recession and that the state, particularly the Bay Area, is likely to suffer the effects even after the U.S. economy starts recovering.

Jock O’Connell, a trade consultant based in Sacramento, said a big chunk of California’s exports reflect shipments between California companies and affiliated operations in Asia. For example, many computer-related companies send components to plants in Asia for final assembly. But as a result of the terrorist attacks, O’Connell said, some state firms are considering altering their practices to perform more of their production domestically.

The state export totals, calculated from Commerce Department statistics, were reported by the nonprofit Massachusetts Institute for Social and Economic Research.

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Bloomberg News was used in compiling this report.