Trade Gap Hits Record Sluggish Exports, Strong Imports Yield $43.6 Billion Deficit
The United States suffered its worst trade performance in history as the depressed Mexican economy cut into U.S. exports and Americans’ appetite for foreign oil, cars and electronic products continued unabated.
But in brighter economic news, the government also reported Tuesday that prices at the wholesale level fell by 0.1 percent in August. The absence of inflationary pressures cheered Wall Street, helping to push the Dow Jones industrial average up 42.27 to a record closing high of 4,747.21.
The Commerce Department said that the deficit in America’s current account jumped to $43.62 billion in the April-June quarter from the first-quarter deficit of $39.03 billion.
The current account is the broadest measure of U.S. trade covering merchandise, services and investment flows.
The deficit in merchandise hit a record $49.04 billion in the spring quarter as U.S. demand for imports rose by $8.5 billion, fueled by rising purchases of oil, autos, computers and other consumer goods. American exports were up as well, but the increase was a smaller $4.5 billion.
Analysts said American producers were hurt by economic weakness in many of America’s prime export markets. Mexico, which had been the third-biggest market for U.S. exports, was struggling with the fallout from its currency crisis. And other prime export markets such as Canada, Japan and Europe were also coping with weaker economies.
“The world economy has slipped in 1995. The weakness in U.S. exports stems largely from the financial shock to Mexico,” said Allen Sinai, chief global economist at Lehman Brothers in New York.
The decline in the Labor Department’s Producer Price Index was led by the third straight drop in energy prices.
Analysts said the absence of inflationary pressures would give the Federal Reserve room to cut interest rates further to counteract weakness in the economy.
Part of that weakness is coming from America’s trade performance. Analysts predicted the deficit in the current account would hit a record $165 billion this year, surpassing the old mark of $151.98 billion set in 1987. But they said improving economic fortunes around the globe should spur U.S. exports and begin narrowing the deficit next year.
The 0.1 percent drop in wholesale prices in August followed no change at all in July and a 0.1 percent decline in June.
The moderation in prices reflected a 0.9 percent decline in energy prices and food prices that were unchanged last month. After turning in higher than expected figures at the beginning of the year, wholesale and retail prices have behaved well in the past few months.
“This was a terrific number for producer prices. We have seen a sea change in the inflationary environment since May,” said Eugene Sherman, economist at M.A. Schapiro & Co. in New York.
Analysts credited a sharp slowdown in economic growth this spring for cooling off inflationary pressures.
But they remained puzzled that the drop in the growth rate had not helped to dampen demand for imports.
In addition to the $49.04 billion deficit in merchandise, the United States suffered a $2.87 billion deficit in investment and a $7.38 billion deficit in unilateral transfer payments, which include foreign aid.
These deficits were offset slightly by a $15.67 billion surplus in services such as tourism, leaving the current-account deficit at $43.62 billion, beating the old mark of $43.28 billion set in last year’s fourth quarter.