THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, September 21, 1994 TAG: 9409210386
SECTION: BUSINESS PAGE: D2 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 75 lines
Rising oil prices and a big drop in airliner sales in July gave the nation its second worst merchandise trade deficit in history, the government said Tuesday. Financial markets sank.
The Commerce Department said the overall deficit in goods and services surged 21.6 percent to $10.9 billion as imports remained near an all-time high while exports weakened considerably.
The worse-than-expected deficit figure, which followed a June shortfall of $9.04 billion, rattled Wall Street.
Analysts said the weaker dollar would add to inflationary pressures and increase the prospect that the Federal Reserve will be forced to boost interest rates for a sixth time this year, possibly as soon as Sept. 27.
The disappointing trade performance and rate-increase fears sent the Dow Jones industrial average down by nearly 68 points, with the 30 blue-chip stocks losing 1.72 percent of their value. The yield on Treasury's benchmark 30-year bond, which moves in the opposite direction of its price, climbed to 7.78 percent.
The Clinton administration sought to play down the significance of July's trade deficit, saying a number of one-time events made it look worse than it was.
Commerce Secretary Ron Brown said the dramatic widening of the deficit was ``not indicative of the economy's long-term trend.'' The administration insisted the deficit would shrink in coming months as faster growth in Europe and Japan helps increase demand for U.S. exports.
But private economists were not as confident, contending the rebound in U.S. exports could take some time to materialize.
``The trade report was extremely disappointing,'' said Allen Sinai, chief economist at Lehman Brothers in New York.
With domestic demand already being slowed by the Fed's rate increases, Sinai said it was critical for export growth to rebound to keep the U.S. economy out of recession.
``A better export performance is absolutely essential if we are to avoid a sub-par economy and rising unemployment rates,'' he said.
So far this year, America's merchandise deficit is running at an annual rate of $145.6 billion, second worst in history. The biggest merchandise trade deficit was a $152.1 billion imbalance in 1987.
As usual, the biggest monthly deficit was with Japan, a shortfall of $5.67 billion, the worst showing since March. The deficit with China rose 8.6 percent to an all-time high of $2.67 billion.
The administration has pushed both countries this year to open their markets to more American goods but has met with little success.
The $10.99 billion gap between what America sells in products and services abroad and what it imports was the worst since the government began tracking both goods and services on a monthly basis two years ago.
On just the goods side, it was the second-worst monthly merchandise deficit on record, exceeded only by an all-time high of $15.9 billion in December 1985.
The July imbalance reflected a $15.70 billion deficit in goods, 12 percent worse than June, and a $4.71 billion surplus in services, 5.5 percent lower than June.
Exports of goods fell 4 percent to $40.33 billion. Nearly 60 percent of that decline came from a $1 billion drop in exports of commercial aircraft, which declined to $841 million, the lowest level in nearly five years.
While airline sales swing widely from month to month, analysts said they were concerned by widespread weakness in other areas, with computers, semiconductors and electric generating equipment all showing big declines. ILLUSTRATION: MERCHADISE IMPORTS AND EXPORTS
KRT Graphic
SOURCE: Commerce Department
KEYWORDS: ECONOMY TRADE by CNB