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Friday, Sep. 11, 1998
Nation's trade deficit hits record high
Global turmoil pushes gap to $56.5 billion, which could lead to deficit above $200 billion for 1998
Associated Press
WASHINGTON - Global economic turmoil pushed the broadest measure of the nation's trade deficit to a record high in the April-June quarter.
And foreigners are using earnings on their export sales to snap up U.S. assets, including government-guaranteed Treasury securities, a report from the Commerce Department showed Thursday.
The current-account deficit, which includes trade in merchandise, services and investments, increased 20 percent to $56.5 billion from the previous record, $46.7 billion in the first quarter.
The increase puts the nation on track to register a deficit above $200 billion for all of 1998. That would be the worst since the government began tracking the data and would beat the record of $168 billion set in 1987. Last year's deficit was $155 billion.
Worry that the global downturn will pinch U.S. corporate profits once again helped ruin Wall Street's day. The Dow Jones industrial average plummeted 249 points, or 3.2 percent, to close at 7,616. Combined with Wednesday's 155-point slide, that wiped out all of Tuesday's record 380-point gain.
Economist Gerald Cohen of Merrill Lynch said the current-account deficit will get worse before it gets better, subtracting a full percentage point from economic growth next year.
With economic troubles hitting Asia starting last summer and, more recently, Russia and Latin America, American companies are watching export sales slump. At the same time, sharply devalued foreign currencies have permitted foreign companies to sell cheaply in the United States.
And foreigners, dismayed at the turbulence in their countries, are using trade earnings to invest in the United States.
The value of foreign-owned assets in the United States rose by $163.4 billion. That included a $25.7 billion increase in holdings of Treasury securities, reflecting buying by international bond mutual funds based in the Caribbean.
Foreign investors also increased their purchases of corporate and other bonds but the advance in foreign purchases of U.S. stocks slowed from the previous quarter.
``The purchases from the Caribbean are really foreign households and companies fleeing their own currencies,'' said economist Mark Zandi of Regional Financial Associates in West Chester, Pa. ``The Caribbean is a conduit. You have anonymity. Taxes are nonexistent. It's just an easy way to invest in the United States if you live overseas.''
The value of U.S. assets overseas increased, too, but not as much. They rose $95.7 billion, reflecting an increase in U.S. bank lending in Western Europe.
The net flood of money into the United States has dramatically lowered U.S. interest rates. The yield on 30-year bonds had fallen by late Thursday to 5.20 percent, the lowest in the 20 years the government's been issuing them.
That's brought mortgage rates down. The average this week for 30-year loans, reported by Freddie Mac, the mortgage company, was 6.77 percent, just above a 30-year low.
Meanwhile, the Labor Department said the pilots strike and related layoffs at Northwest Airlines pushed up the number of first-time applications for unemployment benefits last week to a seven-week high. Benefit claims totaled a seasonally adjusted 312,000, up from 304,000 the week before and the most since the week ended July 18.
The current-account report showed the deficit in goods alone hit a record $64.8 billion in the second quarter, up 16 percent, while the U.S. surplus in services such as travel and consulting, rose only 1 percent to $20.9 billion.
The U.S. deficit in investment income increased 44 percent to $3.2 billion, while unilateral transfers, principally foreign aid, decreased 2 percent to $9.3 billion.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