Saturday, August 19, 2000

Trade gap expands to $30.6B

Record deficit slimmer than economists expected

By Marcy Gordon
The Associated Press

        WASHINGTON — America's trade deficit widened to a record $30.6 billion in June as the U.S. appetite increased for foreign crude oil at the highest prices in nearly 10 years.

        The trade gap was far smaller than many experts had expected, however, leaving the likelihood that the Federal Reserve will leave interest rates unchanged next week.

        The deficit expanded from May's $30.3 billion, which was revised down from the Commerce Department's previous estimate of $31 billion.

        While the June trade gap was a record, it was slimmer than the $31.7 billion many economists had forecast.

        “It seems to have stabilized,” said Gerald Cohen, a senior economist at Merrill Lynch & Co. in New York.

        Looking ahead, Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said he doesn't foresee any dramatic improvement or worsening of the deficit. “On the whole, I think the more likely scenario is a very gradual narrowing,” he said.

        The trade report failed to ruffle economists' convictions that, given a recent series of government figures showing signs of a cooling economy, the Fed's yearlong policy of raising interest rates to tame inflation has borne fruit.

        On Wednesday, for example, the Labor Department reported that inflation at the consumer level inched up a mild 0.2 percent last month as gasoline prices eased after soaring in June. And a Commerce Department report showed housing construction plunging in July.

        On Wall Street, investors preferred to wait on the sidelines until the Fed governors' meeting Tuesday. The Dow Jones Industrial Average was down 9.16 to 11,046.48.

        The new trade report showed total imports of goods and services were up $4.3 billion to a seasonally adjusted $121.2 billion in June, a record. Exports increased by $4 billion to a record $90.6 billion.

        The increase in June's imports mostly reflected a jump in shipments of crude oil — which rose $1.6 billion to a record $8 billion — automobiles; parts and engines; and consumer goods such as televisions, VCRs, stereos and toys. And imports of capital goods, including computer accessories and semiconductors, were up $0.8 billion.

        On the export side, the increase came from stronger demand for capital goods, which jumped $2.1 billion to a record $31.2 billion, and industrial supplies, up $0.7 billion.

        For the first six months of the year, the trade deficit has averaged $177.6 billion, surpassing $116 billion for the same period last year.

        Exports rose to $518.7 billion during the first six months of the year from $465 billion in the same period in 1999.

        Economists believe the bloated deficits reflect the gap between America's remarkably strong economic performance and slower growth overseas.

        But critics say the imbalance reflects a failure of the Clinton administration's trade policies, which they believe have left U.S. workers at the mercy of foreign nations with lower labor costs and lax environmental standards.

        The trade deficit is the sole blot on an otherwise vibrant U.S. economy, now in its longest-ever streak of uninterrupted growth.

        In June, the amount of crude oil imported into the United States, 300.9 million barrels, was the highest since 300 million barrels in August 1998. The price of crude oil leaped from $24.16 a barrel in May to $26.65 in June, its highest level since November 1990 and far above the June 1999 price of $14.52 a barrel.

        Output limits by oil-producing nations have pushed crude-oil prices up over the last year. But many analysts think prices will ease in coming months on the expectation that production will eventually be increased.

        The U.S. deficit with oil-producing nations, including Saudi Arabia, jumped from $4.1 billion in May to a record $4.6 billion in June. Imports from the Organization of Petroleum Exporting Countries rose to $6.03 billion in June from $5.4 billion in May.

        America's deficit with China rose to a record $7.2 billion — bigger than with any other country — from $6.3 billion in May as exports to China fell from $1.5 billion in May to $1.3 billion in June.

        The politically sensitive deficit with Japan narrowed to $6.3 billion in June from $6.9 billion in May.

        The U.S. deficit with major trading partners Canada and Mexico widened to a record $6.6 billion in June. Imports from so-called newly industrialized countries, including Hong Kong, Korea and Taiwan, ballooned to a record $9.7 billion from $9 billion in May.


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