... and in the markets

THE news on the United States trade deficit was very good, but lately it seems that no news is quite good enough, at least not for some hard-nosed analysts. The figures for November, released Friday, show a sharp 25 percent drop, from October's record $17.6 billion to $13.2 billion. Some improvement was anticipated, but this one came into the wondrous realm of ``better than expected,'' and is triggering a string of favorable responses.

The dollar has risen and should stabilize, Wall Street had a good day Friday, bond prices are up, and interest rates should fall. Producer prices, down for the second month, indicate that inflation remains quiescent. This combination of factors gives the Federal Reserve some breathing room, allowing it to let the money supply keep growing, so the economic expansion rumbles along.

Moreover, narrowing of the trade deficit - a measure of US imports less exports - should continue in the months ahead, though not without some ups and downs.

But bringing trade into balance isn't quite so simple as just letting the dollar go into a free fall to undercut foreign manufacturers' prices, as apparently happened awhile back. Despite the fall of the dollar, imports are still cheaper relative to the cost of domestic goods than they were when the dollar began to fall. A number of factors come into play: Falling oil prices hold down the cost of imports overall; imports from South Korea, whose currency hasn't risen as much against the dollar as has the yen, are replacing Japanese imports; and domestic manufacturers are raising their own prices as import prices rise.

The financial markets are still quite volatile, and likely to remain so for some months, until profits and interest rates, among other things, settle out. Wall Street remains a tough neighborhood for the small investor for the time being. There is presumably money to be made in volatility, and someone must be making it.

Fundamental weaknesses of the US economy remain - notably the excess of federal spending over federal revenues - as do fundamental strengths. Stock indexes may be one way of keeping score, but at another level, to say that x percent of a nation's wealth has evaporated overnight is absurd.

We also have a bone to pick over the current obsession with the trade figures. The safest prediction early Friday morning would have been that whatever the figures were, the markets would overreact. The trade figures are a very rough statistical cut, unadjusted for inflation and excluding non-merchandise items such as services. At one point money supply figures were tracked by the markets with similar eagerness - or obsessiveness. Before that it was inflation. If the trade deficit does continue to narrow, as is widely but not universally expected, the monthly figures will lose some appeal, and some other statistic will become the locus of anxiety.