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U.S. Trade Deficit Hits Record

September 13, 2000

WASHINGTON (AP) _ Americans’ hearty appetite for foreign goods helped catapult the nation’s trade deficit to a record $106.1 billion in the second quarter based on the broadest measure of trade.

In the April-June quarter the deficit widened 4.6 percent from an imbalance of $101.5 billion recorded in the previous quarter, the Commerce Department said Wednesday in its ``current account″ report on international transactions.

The current account is considered the best gauge of a country’s international economic standing because it measures not only the goods and services reflected in the government’s monthly trade reports, but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments.

The bloated deficit, economists said, reflects the robust state of the U.S. economy, which has been growing much faster than its trading partners’.

``Our happy consumers have jobs and rising incomes and are still buying a lot of imports,″ said economist Clifford Waldman of Waldman Associates. ``And, the healing consumers abroad _ living in counties continuing to recover from a global financial crisis in 1997 and 1998 _ aren’t buying as much of our exports,″ he added.

America’s deficit in goods widened to a record $110.2 billion in the second quarter, a 4.1 percent increase from the first quarter. However, in the services category, which measures such things as airline travel, the U.S. is running a surplus, which grew 1.1 percent to $21 billion.

An expected slowing in U.S. consumer spending next year ``should dampen import growth and largely stem the rapid deterioration in the current account deficit,″ said Stan Shipley, economist with Merrill Lynch.

Although the overall deficit set a record in the second quarter, it was a slightly better showing than the $108 million shortfall many analysts were expecting.

The U.S. economy has continued to thrive despite the huge trade deficits, but Federal Reserve Chairman Alan Greenspan and other economists have expressed concerns that the rate of increase in the deficit is unsustainable and could cause problems down the road if foreign investors become fearful.

Such a development could cause the dollar to weaken seriously, triggering inflation pressures in the United States as imports became more expensive, and send investors stampeding out of U.S. stocks and bonds.

The International Monetary Fund on Monday called the soaring U.S. current-account deficit one of the primary threats to global prosperity.

In Wednesday’s report, the deficit in investment earnings widened to $4.5 billion in the second quarter, up 4.1 percent from the previous quarter.

This category, which reflects the difference between what Americans are able to earn on their overseas investments compared to what foreigners earn on their U.S. investments, has produced shortfalls since the second quarter of 1998.

Before the United States began running chronic trade deficits in the late 1970s, it had been been the world’s largest creditor country, a position now held by Japan, and enjoyed perennial surpluses from its huge overseas holdings. Now, the United States is the world’s largest debtor country.

The category of unilateral transfers climbed to $12.3 billion in the second quarter, a 2.6 percent increase from the first quarter. This category adds to the overall current-account deficit because it represents payments that the U.S. government makes in foreign aid to other countries.

The current account hit an all-time high of $331.5 billion in 1999 and is forecast to set another record of around $425 billion this year.

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On the Net:

The current account report: http://www.bea.doc.gov/bea/newsrel/trans200.htm