Strong economy attracts imports; trade gap widens. GOP sees positive trend, but Democrats worry over slipping exports

The surging United States economy is acting like a giant sponge, soaking up foreign-made computer equipment, facsimile machines, clothing, power generators, machinery for making tools, and other consumer goods. Yesterday, the Commerce Department said these imports, which were up an unexpectedly high 5.7 percent in June, resulted in a widening of the US trade deficit to $12.5 billion from a $9.8 billion figure in May. This is the first time in the past three months the trade deficit has become worse. Exports, which had been climbing steadily, slid 2.4 percent, to $26.8 billion.

Ironically, economists believe the wider trade deficit, now reported on a seasonally adjusted basis, is a sign that the economy is barging ahead at a robust pace. On Monday, for example, the government said the July industrial production rose a vigorous 0.8 percent. In another report issued yesterday, the government said American industry operated at 83.5 percent of capacity in July, the highest level in more than eight years.

``It's hard to bring down the trade deficit in the face of an economy that is growing rapidly,'' says Robert Dederick, an economist with the Northern Trust Company in Chicago. (High-tech firms boost exports, Page 10.)

The disappointing trade numbers may give the Reagan administration and the Federal Reserve Board help in their efforts to corral the frisky US dollar. Following yesterday's report, the dollar fell against the Japanese yen, West German mark, and British pound. ``Some modest weakening of the dollar would be welcomed,'' says C. Fred Bergsten of the Institute for International Economics in Washington.

Some economists warn against reading too much into the negative news since the numbers are often revised sharply from month to month. ``You cannot reach the conclusion the trade deficit is starting to get worse on a trend basis,'' says Lawrence Chimerine, chairman of the WEFA Group in Philadelphia.

Last year, the US trade deficit reached $170 billion, but is expected to come down to $140 billion this year. Mr. Chimerine expects the gap to continue closing. ``The improvement will be slow and gradual, with setbacks along the way,'' he says.

The administration tried to play down the news as well. In a statement issued from the Republican convention in New Orleans, Commerce Secretary C. William Verity said, ``The underlying trend remains favorable.'' He pointed out that since June of last year exports are up 19 percent, after inflation, and imports are up only 5 percent.

Democrats, however, are seeing the trade numbers in a different light. ``It's clearly bad news that exports declined,'' says a spokesman for Sen. Lloyd Bentsen, the running mate of Gov. Michael Dukakis.

The next important economic statistic, says Chimerine, will be the August retail sales figures released shortly after Labor Day. If the sales numbers are strong, this might indicate the Federal Reserve Board will act to raise interest rates again. Only last week, the Fed raised the discount rate - the rate it charges member banks - to 6.5 percent. This was followed by a round of prime rate hikes.

The latest trade numbers, however, are unlikely to prompt more tightening by the Fed. ``They are more a confirming statistic,'' says Mr. Bergsten. ``This is why the Fed has already moved.''

You've read  of  free articles. Subscribe to continue.
QR Code to Strong economy attracts imports; trade gap widens. GOP sees positive trend, but Democrats worry over slipping exports
Read this article in
https://www.csmonitor.com/1988/0817/atrade.html
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe