U.S. Trade Deficit Soars

The U.S. trade deficit soared to a record $80.7 billion in the spring as a small increase in American export sales abroad was swamped by a huge rise in imports, including a big increase in the nation's foreign oil bill.

The Commerce Department reported that the deficit in the nation's current account climbed 17.5 percent in the April-June quarter, above the first-quarter imbalance of $68.7 billion, also a record.

The current account is the broadest measure of trade because it includes not only goods and services - tracked in monthly government reports - but also investment flows and a category including U.S. foreign aid payments.

Through the first half of this year, the current account was running at an annual rate of $299 billion, far surpassing the imbalance for all of 1998 of $220.6 billion, the biggest deficit in history.

America's widening trade deficit reflects the impact of the Asian financial crisis, which cut sharply into U.S. export sales of farm products and manufactured goods, and also increased competition from cheaper-priced imports.

The U.S. economy, however, has been able to withstand the poor trade performance because of the strength of the consumer sector.

In another report Monday, the government said retail sales last month jumped by 1.2 percent in August, the biggest increase in six months.

The new figures showed that consumer spending - which accounts for two-thirds of the total economy - remains at high levels. That is likely to raise concerns that the Federal Reserve will have to do more in terms of boosting interest rates to slow economic growth to a more sustainable pace.

The big rise in the current account deficit in the second quarter was led by a 14 percent increase in the deficit in goods, which climbed to $84.6 billion in the spring.

U.S. goods exports increased 0.9 percent, with manufactured goods and farm exports both showing increases. This small growth, however, was swamped by a 4.9 percent rise in imports, led by a sharp increase in world petroleum prices.

The United States still had a surplus in services, covering such things as airline fares and insurance sales, but it declined to $19.6 billion in the second quarter, down from $20.2 billion in the first quarter.

The deficit in investment earnings edged up to $4.4 billion in the second quarter, from $4.3 billion in the first three months of the year, while a category that includes U.S. foreign aid rose to a deficit of $11.3 billion in the second quarter, up from $10.3 billion.

Economists have been looking for consumer spending to slow, based on the fact that the Fed has already boosted short-term interest rates by one-half percentage point this summer. And long-term rates, including mortgage rates, have risen even more this year.

But the consumer sector is being supported by the lowest unemployment rate in nearly three decades, a 4.2 percent level that has given more wrkers cash to spend.
Stores saw a 0.9 percent sales increase.

Written By Martin Crutsinger