Thursday, September 21, 2000
Blot on sterling economy
Trade deficit starts to worry analysts
By Martin Crutsinger
The Associated Press
WASHINGTON The U.S. trade deficit soared to a record $31.9 billion in July as oil prices climbed to a 10-year high.
America set record deficits with China, Japan, Western Europe and Canada.
The Federal Reserve, in another report released Wednesday, said even though the U.S. economy expanded moderately in August and early September, there were further signs of slowing growth.
The Fed said the nation's labor market continues to be tight, meaning companies are scrambling for workers. And, there were widespread reports of employers boosting wages to recruit and retain workers.
Still, the Fed said there were few indications these wage increases were being passed along to consumers in the form of higher product prices.
Healthy productivity gains and competitive pressures kept prices in check, the Fed said.
The survey, compiled from reports from the Fed's 12 regional banks, will be used when the central bank meets Oct. 3 to review its stance on interest rates. The survey was based on information collected before Sept. 11.
On the trade front, the Commerce Department reported the July deficit was 6.9 percent higher than a revised $29.8 billion imbalance in June.
It surpassed the old record of $30.4 billion set in March.
Trade continues to be the one blot on an otherwise sterling U.S. economic per formance. This year, the trade deficit is running at an annual rate of $353.7 billion, far surpassing the old record of $265 billion set last year.
While the huge deficits have yet to have much impact on the overall economy, analysts are growing concerned they could become a problem if foreigners, who up until now have been happy to accept U.S. dollars in payment for their products, suddenly grow concerned.
If they began cashing in their dollar-denominated investments on Wall Street, that could send the dollar and stock and bond markets crashing.
The International Monetary Fund, in a new economic forecast Tuesday, cited the rising U.S. trade deficit as one of the primary risks facing the global economy.
We all know the trade deficit has to subside. The question is whether it will subside in an orderly or a disorderly way, said Robert Dederick, economic consultant at Northern Trust Co. of Chicago.
The bigger the trade deficit gets, the bigger the risks that it will be disorderly.
Steady, steady, steady: That's the tone of the beige book report for the Fed's Cleveland district, which includes Cincinnati.
Growth in economic activity ... has experienced little change since our last report, remaining moderate, the report said.
Levels of many kinds of activity are below year-ago figures, but remain good and are not getting worse. That includes retail sales, housing construction and commercial lending, the report said. Labor remains tight, with demand for temporary workers expected to increase.
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