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Wednesday, Aug. 19, 1998
As trade deficit dips, inflation holds steady
By MARTIN CRUTSINGER
Associated PressWASHINGTON -- The trade deficit narrowed slightly in June to $14.2 billion but remains at a record level for the year as American farmers and manufacturers suffer from a plunge in exports to Asia, the Commerce Department reported Tuesday.
American exports fell for the fifth time this year, with the plunges especially sharp to the Asian nations hardest hit by the currency turmoil. The June deficit was still the third highest on record even though a drop in imports narrowed the gap by 8.9 percent from an all-time high of $15.5 billion in May.
Private economists warned that the June improvement in the deficit is likely to be short-lived, given the signs that Asia's troubles are spreading to Russia and emerging markets in Latin America.
``The Asian crisis is not over. The trend for the U.S. trade deficit is still up,'' said Lawrence Chimerine, chief economist at the Economic Strategy Institute in Washington.
With the trade deficit acting as a drag on economic growth and a second government report Tuesday showing that inflation remained tame in July, the Federal Reserve announced it was leaving interest rates unchanged.
Fed policy-makers, who haven't altered rates since March 1997, signaled at the end of nearly four hours of closed-door discussions that they were content to remain on the sidelines and watch how much Asia's woes will slow the U.S. economy.
While there are indications that wage pressures are beginning to rise, the Labor Department said Tuesday that inflation is still not showing up at the consumer level. Prices edged up just 0.2 percent overall as a drop in gasoline prices helped to offset increases elsewhere including prices increases for new autos, airline tickets and tobacco.
For the year, consumer inflation is rising just 1.5 percent, even better than last year's 11-year low of 1.7 percent. Asia's economic crisis and the steep recessions that have cut sharply into world demand have pushed down prices for a variety of products from oil to farm crops.
While Asia's troubles have helped the U.S. inflation picture, those problems have cut sharply into demand for American goods, causing the U.S. trade deficit to soar. The new trade report showed the imbalance for the first six months of this year running at an annual rate of $158 billion, putting the country on track to surpass the record deficit of $153 billion set in 1987.
So far this year, U.S. exports have dropped 46 percent to South Korea, 53 percent Indonesia, and 28 percent to Thailand, the three nations forced to seek more than $100 billion in bailout packages last year from the International Monetary Fund.
Administration economists insisted that the trade drag, which helped slow economic growth to an anemic 1.4 percent rate in the spring, will not be enough to push the country into a recession so long as domestic consumer demand remains strong.
The Asian financial crisis that began in July 1997 has shown little signs of easing. Japan, the world's second largest economy, is mired in its worst recession in 50 years and this week Russia was forced to devalue its currency and declare a temporary halt to paying parts of its foreign debt because of a severe cash shortage.
While the overall deficit declined in June, the deficit with Japan was up 6 percent in June to $5.3 billion and the deficit with China climbed to an eight-month high of $4.7 billion.
In June, U.S. exports of goods and services fell 0.5 percent to $76.2 billion and managed to eke out only a 1 percent increase for the first six months of this year, far below the 9.6 percent growth rate turned in during the first half of 1997.
Farm shipments managed a small increase of $95 million to $3.8 billion in June but for the first six months of this year are down $2 billion, reflecting the loss of Asian markets and lower crop prices.
Imports in June were down 2 percent to $90 billion after climbing to an all-time record in May. The drop in imports was led by an 8.1 percent fall in oil imports reflecting a drop in crude oil prices to $11.23 per barrel, the lowest level in 12 years.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web