U.S. Plans Concessions on Farm Trade Barriers : Deficit Falls Sharply as Exports Set Record

WASHINGTON — The nation’s trade deficit in goods fell to $10.5 billion in September, down from $12.3 billion the previous month, the Commerce Department reported Wednesday.

But the report did nothing to stem a postelection run on the dollar, and stock and bond prices continued their declines.

Merchandise exports, paced by manufactured products and capital goods, increased by about $600 million to a record high of $28.2 billion, eclipsing the August record of $27.5 billion. Imports declined by $100 million to $38.7 billion.

‘Glacial’ Progress Seen

Economists warned that all signs point to only “glacial” progress for the foreseeable future in reducing the trade deficit, which is regarded as a key symptom of the economic ills that President-elect George Bush will inherit.

“The improvement was good, but not good enough,” said Allen Sinai, chief economist at the Boston Co. “The problem remains imports, which have only retraced about a quarter of their big jump of a year ago.”

The September trade deficit had been widely expected to fall short of the August deficit, which was nearly $1 billion greater than the monthly average of $11.4 billion so far this year. The actual $10.5-billion deficit for September was squarely in the middle of the projections by financial market forecasters.

That was not enough to break through the gloom that has settled over the markets. The Dow Jones Industrial Average tumbled an additional 38.59 points and is down about 89 points since the Nov. 8 election. Bond prices also closed lower.

Moreover, the dollar continued to fall on international currency markets. It closed at its lowest levels in five months against the British pound, the West German mark and the Swiss franc, and it fell below 122 Japanese yen, compared with 127 yen a month ago.

Little Room to Maneuver

Analysts said that the situation indicates that the Bush Administration, when it takes over in January, will not have much room to maneuver to lower the trade deficit while keeping the economic recovery alive.

The only likely option for pushing the trade deficit down faster is a weaker dollar, which makes U.S. goods cheaper and foreign ones more costly on international markets. However, the markets fear such a trend as a harbinger of higher inflation, higher interest rates and eventually a recession.

Economists pointed out that at least the unmistakeable trend for the trade deficit remains in the right direction: down.

During the first nine months of the year, the deficit has totaled $102.9 billion, compared to $127.3 billion during the same period in 1987, and apparently is headed for a year-end total of $137.2 billion, a solid 19.4% decline from last year’s record $170.2-billion deficit.

However, Sinai noted that U.S. consumption of foreign goods is still high, with U.S. businesses seemingly stuck on getting 35% of their capital goods and equipment from abroad.

“Unless imports are cut back, the trade deficit cannot mount another big turn toward improvement,” he said.

Other economists pointed out that the huge 28.7% improvement in exports over a comparable period last year cannot be sustained as long as American factories are operating at near capacity. September’s 84% rate of industrial capacity utilization was the highest in more than eight years, the Federal Reserve said.

“Exports hit a record level, and that is encouraging,” noted Irwin L. Kellner, chief economist at Manufacturers Hanover Bank in New York. “But, to keep that up, export industries have to increase their capacity, and many of them are now running at top speed. And trading partners have to expand their economies to keep absorbing these goods.”

Canada, where there have been signs of economic slowdown, widened its trade surplus with the United States from $400 million to $1.1 billion, but the deficit with Japan declined by $700 million to $4.1 billion and with Western Europe by $500 million to $900 million.

Imports Keep Rising

“We’re in a situation where the economy is showing signs it is running close to capacity right now and will have a problem expanding much more on the export side,” said Bruce Steinberg of the Merrill Lynch investment firm in New York. “So, while we should keep having some export gains, they will be slow, while imports seem to keep rising. That means trade improvement from here on out will be glacial.”

During September, imports of industrial supplies and capital goods fell $1 billion and consumer goods and food imports declined $600 million; automotive imports increased $600 million and most other categories were largely unchanged from August.