Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, August 18, 1995 TAG: 9508180038
SECTION: BUSINESS PAGE: A11 EDITION: METRO
SOURCE: KNIGHT-RIDDER/TRIBUNE
DATELINE: NEW YORK LENGTH: Medium
The June figure follows a revised $11 billion trade gap in May, originally reported at $11.4 billion.
The June gap reflects a $16.4 billion deficit in goods, partly offset by a $5.1 billion surplus in services.
The June trade gap, though higher than forecast, is not expected to adversely impact second-quarter gross domestic product.
Second-quarter GDP was initially estimated by the Commerce Department up 0.5 percent, with the first revisions due Aug. 30.
Economists polled by Knight-Ridder had expected the trade deficit to contract slightly to $10.6 billion in June.
Josh Feinman, an economist with Bankers Trust, agreed that the trade figures were worse than expected, noting, ``There is still really no improvement in the trade situation. It'll take a little more out of GDP in the second quarter.''
He added, ``In the GDP figures, personal consumption will be revised higher, and with the May trade revisions, there are offsetting factors. Therefore, there won't be much of a change. Flat or up a half, GDP was weak.''
Feinman expects to see the U.S. trade imbalance improve in the second half of the year as the lagged benefits of the lower dollar finally appear. However, he also explained that the slow global economy means it will take longer for the U.S. trade picture to improve.
Other economists agreed with Feinman's GDP assessment of the June trade figures. They cited as a key factor within the trade report the lower imports of goods and services, which fell 0.6 percent to $75.8 billion in June. The decline in imports was headed by lower auto and auto parts.
``The number is consistent with the other two months of second quarter, and is basically saying that the economy was undergoing an inventory correction in the quarter and affected imports,'' said John McAuley, an economist at Wilkenson-Boyd Capital Markets.
As to when the trade deficit may actually begin coming down, McAuley said it is ``going to be a slow, painful process.''
McAuley also said Thursday's report will likely be neutral for second-quarter GDP.
``The revision to May more than offset the slight underestimate to June,'' he said.
``It looks like GDP will be virtually unchanged from the advance data,'' agreed Ray Stone, an economist and Stone and McCarthy. ``We see second-quarter GDP at up 0.4 percent versus 0.5 percent in the advance data. ... It's virtually the same.''
As for the decline in auto imports, McAuley said, the fact that there were plant shutdowns in July may have caused the big automakers to stockpile cars in advance, thus paring June imports.
Auto and auto parts also hindered U.S. exports with the June report showing an 11 percent slide to $4.4 billion. Economists see extended weakness in the auto trade component through the second half of the year, or until a significant improvement in the economic picture of Europe, Japan and certainly Mexico.
The June trade gap with Mexico was reported unchanged at $1.6 billion.
Stone said the deficit with Mexico, in particular, will have a significant drag on U.S. GDP this year, although the bulk of the effect came in the first quarter.
``Looking at Mexico, the deficit to date is about $8.6 billion compared to surplus of $1.1 billion in the same period last year. That's a $19 billion difference on an annual basis,'' Stone said.
``That will be taking out 0.4 percent to 0.5 percent of [U.S.] GDP [growth] this year,'' he said. ``The impact was front-loaded in the first quarter but it's still having an impact.''
The closely watched trade imbalance with Japan contracted modestly to $5.3 billion in June from May's $5.5 billion.
Stone said the reduction in the deficit with Japan, which runs counter to a cyclical tendency for the deficit to rise in May and June, may have been due to reluctance among Japanese car importers to import vehicles ahead of sanctions that were being threatened.
While the trade deficit with China widened, it was not viewed as a threat to the United States in coming years. Unlike Japan, economists explained that China is a developing nation that initially will need to import goods such as machinery and building materials. Later, China is expected to import the sophisticated services and high-tech equipment and software that the U.S. supplies.
by CNB