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US trade deficit hits record gap

The US trade deficit widened by a surprisingly large 11 percent in September, reflecting both a surge in energy imports after Hurricane Katrina and a steep drop in airplane exports because of a strike, the government reported on Thursday. The trade gap with China also set a new record.

The US imported US$66.1 billion more in goods and services than it exported in the month, breaking the previous record set last February when the economy registered a US$60.4 billion deficit, the Commerce Department reported.

The trade deficit in the first nine months of the year totaled US$529.8 billion, about 18 percent higher than in the first nine months of last year. That, in turn, was up 21 percent over the same period in 2003. Some analysts said the trade gap would narrow in the coming months but others were not as sanguine, saying the deficit would have been wider even without the one-time effects seen in September.

"One-third of the widening of the deficit is the oil bill, and aircraft sales explains most of the rest," said Carl Weinberg, chief global economist at High Frequency Economics, a research firm.

After Hurricane Katrina hit New Orleans at the end of August, gasoline and natural gas prices surged and imports of the products increased to make up for lost domestic production. Natural gas imports climbed 30 percent, to US$3.7 billion, and petroleum products and fuel oil jumped 22.8 percent, to US$6.8 billion. (Crude oil imports, however, fell by US$350 million, reflecting the shutdown of oil terminals and Gulf Coast refineries.)

At the same, exports fell by US$2.8 billion, most of it due to falling airplane sales. The Boeing Co, based in Chicago, has said a machinists strike in September delayed the delivery of 30 planes. Food exports fell US$296 million, reflecting transportation disruptions caused by the shutdown of the Port of New Orleans.

Weinberg said he expected the trade deficit to narrow as aircraft sales pick up -- Boeing projects an 11.7 percent increase in sales next year -- and energy prices retreat. The Labor Department reported Thursday that the price of petroleum-based imports fell 4.4 percent last month after surging 8 percent in September. Prices of all imports dropped 0.3 percent, only the second decline this year, after rising 2.3 percent in September. Excluding petroleum products, import prices rose by 0.8 percent last month.

But other economists say the trade balance will remain at today's depressed levels, or could worsen, because demand for foreign products remains strong and the dollar has strengthened against the euro and Japanese yen this year, making American exports more expensive in other countries.

"Only with very weak US growth or a major drop in the US dollar will the trade deficit improve on a sustained basis," said Ethan Harris, chief US economist for Lehman Brothers. "The reason you need these dramatic movements is that the US has, according to almost every study, an incredible appetite for imports."

The US trade deficit with China, the largest with any single country, rose 8.8 percent in September, to US$20.1 billion, and rose 28 percent in the first nine months of the year, to US$146.3 billion. Exports to that country fell 17 percent and imports rose by 4 percent in September.

Earlier this week, US and Chinese government officials reached a deal to restrict the growth in textile imports from China for the next three years. The Bush administration and Congress are also pressing China to allow its currency, the yuan, to appreciate much more against the dollar. Democratic, and even some Republican lawmakers have threatened to impose sanctions on the country.

President George W. Bush plans to visit Beijing late next week, and the growing trade deficit with China is expected to be at the top of his agenda.
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