Trade gap grew less than expected in July Steady consumer prices also show healthy economy

September 18, 1998|By BLOOMBERG NEWS

WASHINGTON -- The U.S. trade deficit widened less than expected in July and consumer prices were little changed in August, government figures showed yesterday.

Those findings -- along with other reports showing a decline in jobless claims and rising incomes for workers -- suggest that outside of a slowdown in manufacturing, the U.S. economy is holding up well in its eighth year of expansion, analysts said.

"There's enough momentum to keep the economy going despite the weakness in manufacturing," said Cynthia Latta, an economist at Standard & Poor's DRI in Lexington, Mass.

The trade deficit rose to $13.9 billion in July after narrowing in June to a revised $13.6 billion, the Commerce Department said. Analysts had expected the trade gap to widen to $15.3 billion from the previous June estimate of $14.2 billion.

Much of the July increase was because U.S. exports fell 1.3 percent in July to $75.4 billion, the lowest since February 1997, reflecting a drop in shipments of auto parts, industrial supplies and consumer goods.

Imports fell 0.8 percent to $89.3 billion, the lowest since November, as purchases of autos, foods and industrial supplies declined and prices for crude oil dropped to their lowest level since 1986.

The consumer price index, the nation's main inflation gauge, rose 0.2 percent last month, the same as in July, as higher apparel prices were almost offset by a decline in gasoline costs, Labor Department figures showed. For the first eight months of this year, consumer prices rose at a 1.6 percent annual rate, the same as in the first eight months of 1997.

Another report yesterday showed that 299,000 U.S. workers filed for state unemployment benefits last week, down from 314,000 a week earlier -- in part because government offices were closed for the Labor Day holiday on Sept. 7.

Still, the decline should give Federal Reserve Chairman Alan Greenspan and his fellow policy-makers pause before they vote to cut U.S. interest rates, according to Joel Naroff, chief bank economist at First Union Corp. in Philadelphia. "The labor market is as tight as a drum," he said. "Cutting rates to stimulate the economy could wind up creating even more problems" for companies struggling to find scarce workers.

U.S. workers' average weekly earnings, adjusted for inflation, rose 0.5 percent in August, suggesting there's little reason to expect a falloff in consumer spending.

That topped July's 0.1 percent increase and was the largest increase since May, Labor Department figures showed. Compared with a year ago, real average weekly earnings were 3.5 percent higher in August.

Stocks slumped in the United States and around the globe on concerns that slower growth will stunt corporate earnings. The Dow Jones industrial average fell 216 points, or 2.67 percent, to 7,873.77.

Bonds rose for a second day as investors rushed to the relative safety of U.S. Treasury securities. The benchmark 30-year Treasury bond rose 5/8 point, pushing down its yield 4 basis points to 5.18 percent.

The trade report showed that for the first seven months of the year, the deficit totaled $92.496 billion, up from $63.244 billion during the first seven months of 1997. For all last year, the trade gap totaled $110.207 billion. At the current pace, the trade shortfall for all 1998 is on target to total $158.6 billion, exceeding the record $153.3 billion of 1987.

The deficit with China, a major source of clothing and household products for American consumers, increased to $5.420 billion in July. That topped the trade shortfall with Japan for the first time since September 1997.

The merchandise deficit with Japan, the nation's second biggest commercial partner behind Canada, narrowed to $5.172 billion in July from $5.250 billion during June, as exports grew at a faster pace than imports. The U.S.-Japan gap was $5.119 billion in July 1997.

The deficit with Asia's newly industrialized countries, including Hong Kong, Singapore, Taiwan and Korea, rose to $2.615 billion in July from $2.412 billion in June and $806 million during July 1997.

Pub Date: 9/18/98

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