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U.S. trade deficit narrows
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October 19, 2000: 2:25 p.m. ET
August trade gap narrows to $29.44B; imports, exports at record levels
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - The United States trade deficit narrowed substantially to a six-month low in August as a surge in exports of goods ranging from computer chips to airplane engines offset record imports, government figures released Thursday showed.
 The trade deficit, which measures the amount of money spent on imports coming into the U.S. versus the amount received from exports leaving the country, narrowed in August to $29.44 billion. That was $2.26 billion below July's revised $31.7 billion deficit and the $31.8 billion gap expected by analysts polled by Briefing.com.
All told, the shrinking trade deficit was welcome news to analysts, investors and policymakers -- a hopeful sign that U.S. companies are still exporting their goods and services abroad, even with the strong U.S. dollar. A strong dollar makes it more expensive for people and companies in other countries to purchase U.S. products and services.
Even so, analysts, economists and even Federal Reserve Chairman Alan Greenspan cautioned that higher oil prices could impact the trade deficit specifically and the economy in general as the effects of oil prices at 10-year highs begin to appear in later months' numbers.
"For the moment, this appears extremely favorable for the economy," said Pierre Ellis, an economist with Primark Decision. "This is the second month out of three where exports have increased substantially, which means that foreign economies are perhaps strengthening enough to buy our stuff. Still, the risk is for further oil price shock, which could push the deficit back up."
Hopeful news?
Record trade imbalances have been a concern for analysts and investors because they reflect, in part, the U.S. consumers' uninhibited desire to buy, despite the fact that the Fed has tried repeatedly to deter consumer spending by raising the cost of borrowing by almost 2 percent since May 1999.
 The reason the trade deficit is a threat to the economy is the striking imbalance between what American consumers and companies pull into the country and what they send back out to the rest of the world, something Fed officials including Greenspan worry could create too much demand at home and too little supply from abroad.
Thursday's figures indicated two things: that demand for imported goods at home, while still at a record, may be starting to slow, and that demand for American-made products abroad still remains strong -- something that bodes well for the health of the economy, according to economists.
"While overall U.S. growth slowed, it by no means is flirting with a stall; soft landing chances were increased by this news," said Sherry Cooper, chief economist with BMO Nesbitt Burns. "Indeed, some may ask, 'what landing?'"
Exports rose to a record in August, ringing in at $93.02 billion for the month, up from a revised $89.8 billion in July. Imports also rose to a record, jumping to $122.5 billion from a revised $121.5 billion in July, Commerce said.
Imports, exports at records
On the export side, a 4 percent increase in shipments of non-defense capital goods paced the jump in shipments abroad, pushing overall exports higher for a second straight month. Exports of computers, semiconductors, aircraft parts and engines and railway equipment all jumped. Exports of automotive parts and equipment rose 10 percent to $7.12 billion.
 On the import side, a 3.9 percent increase in imports of capital goods -- things such as seasonal goods and other products to be sold during the fall and winter months -- pushed overall imports to a record. Crude oil imports eased 1.5 percent from the previous month's record in volume and value as prices waned in the later summer months.
The government said the price per barrel averaged $26.59 in August, compared with $27.76 a month earlier. December crude oil on the New York Mercantile Exchange gained 28 cents Thursday to $32.75 a barrel.
The trade deficit figures came in concert with remarks from Greenspan, who indicated that the central bank is keeping a close eye on the effects that skyrocketing oil prices may have on the economy.
"Policymakers will need to be on the alert for oil-driven, indeed energy-driven, risks to our expansion," Greenspan said in prepared remarks to the Cato Institute, noting that rising oil prices so far had neither affected inflation expectations nor dampened consumer spending, the economy's main engine, which he said remains "firm."
Greenspan's comments on oil prices and the state of the U.S. economy ended months of silence for the central banker, who has kept mum as U.S. stock markets have churned and broiled in recent weeks.
Muted market reaction
Nonetheless, financial markets registered little reaction to the trade report or Greenspan, focusing instead on healthy revenue and profit reports from some of Wall Street's more notable technology companies. Stocks surged at the opening bell, while bonds posted limited gains.
 By region, the trade deficit with Japan shrank to $6.8 billion in August from $7.5 billion during July. The deficit with China rose to a record of $8.6 billion, while the deficit with the Organization of Petroleum Exporting Countries was $4.4 billion. The deficit with Canada, the largest U.S. trading partner, shrank to $4.5 billion, the deficit with Mexico narrowed to $1.9 billion, and the deficit with Western Europe narrowed to $5.2 billion.
Separately, the Federal Reserve Bank of Philadelphia Fed said manufacturing in the U.S. mid-Atlantic region contracted in October for the first time in nearly two years following weak growth in September.
The Philadelphia Fed said its business conditions index dropped to -3.8 in October from 8.2 in September, far lower than the 6.1 reading economists had predicted. The prices paid index, a gauge of inflation pressure, also fell, to 20.6 in October from 23.9 in September, while the new orders index fell to -3.7 from 15.3 in the prior month.
The Business Outlook Survey is a diffusion index compiled by subtracting the firms reporting decreases from those reporting increases with seasonal adjustments applied. Any reading over zero indicates growth. The Philly Fed serves the nation's third economic district, which encompasses Delaware, the eastern portion of Pennsylvania and the southern portion of New Jersey. 
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