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U.S. trade gap hits record
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November 21, 2000: 11:10 a.m. ET
September deficit widens to $34.26B; flat exports, higher oil prices cited
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - The U.S. trade deficit widened to a record in September as surging costs for oil, chemicals and other petroleum-based products failed to offset the dollar value of goods and services exported abroad, government figures released Tuesday showed -- a sign that the economy is still being fueled by strong demand.
 The trade deficit, which measures the amount of money spent on imports coming into the United States versus the amount received from exports leaving the country, widened in September to a record $34.26 billion. That was almost $5 billion higher than August's revised $29.9 billion deficit and well above the $30.6 billion gap expected by analysts polled by Briefing.com.
The record trade imbalance provided yet another indication to analysts of the strength of the U.S. economy, currently in its record 115th month of uninterrupted expansion. That strength has been driven in large part by U.S. consumers' penchant to buy, something the Federal Reserve has been seeking to rein in by raising interest rates.
The numbers also suggest little slowdown in U.S. demand for commodities and other goods produced abroad that were made less expensive by a currency that has risen at least 12 percent this year. Demand for those goods is coming from consumers who continue to buy imported goods and from businesses that are stocking up on capital equipment to keep themselves competitive.
"Having imports grow as the economy is slowing is telling you that American companies are facing great competitive pressure, especially in capital equipment," said Pierre Ellis, an economist with Primark Decision Economics. "It doesn't help American companies because international competition remains very, very strong."
Little market reaction
Financial markets took the numbers in stride, registering no surprise at the fact that the robust pace of the U.S. economy is still pulling in a large amount of imported goods. "You couldn't say the number was completely unexpected," Peter Morici, a senior fellow with the Economic Strategy Institute in Washington, told CNNfn's Before Hours, adding that they put the Federal Reserve into somewhat of a bind. (455KB WAV) (455KB AIFF)
 The reason the trade deficit puts the Fed into a bind 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 Chairman Alan Greenspan, worry could create too much demand at home and too little demand abroad for U.S. goods.
To be sure, analysts point to the strong U.S. dollar as one of the culprits that will likely keep the trade balance in deficit status for some time. That's because a strong U.S. currency makes American-made goods more expensive to overseas buyers, and makes goods and services imported from abroad cheaper for U.S. buyers.
As long as the Fed remains committed to raising rates, the U.S. dollar will continue to strengthen, "which will only push the gaping imbalance further into the red," noted Sherry Cooper, chief economist with brokerage BMO Nesbitt Burns Inc.
Imports rose to a record $126.6 billion from $122.8 billion in August, while exports held steady at $92.4 billion after ringing in at $92.8 billion a month before. Rising oil prices played a major part in September's record deficit, with the price of imported oil averaging $28.98 per barrel, the highest since November 1990. In August, the average price of oil was $26.59 per barrel.
A record shortfall
Through September, the trade deficit totaled $270.2 billion this year, up from $188.7 billion during the first nine months of 1999, according to the Commerce Department. The September deficit puts the annual shortfall on track to reach a record $360 billion, compared with the previous high of $265 billion in 1999.
 One red flag for some economists in September's numbers was a concern about rising inventories. With the dollar value of imports surging to records at the same time that the economy is slowing, some economists expressed concern that businesses are simply stockpiling their shelves with imported goods and not necessarily selling those goods to consumers.
"I am getting the sneaking suspicion that there is an inventory situation going on here, which means that growth could be even weaker," said Joe Lavorgna, a senior economist with Deutsche Bank Securities. "That is a bit troubling to me." The trade numbers influence growth forecasts because the Commerce Department uses them in its quarterly tally of gross domestic product.
By region, the trade deficit with Japan narrowed to $6.1 billion in September from $6.8 billion in August. The deficit with the Organization of Petroleum Exporting Countries fell to $4.2 billion from $4.4 billion. The deficit with Western Europe fell to $4.4 billion from $5.2 billion.
Elsewhere, the deficit with Canada, the largest U.S. trading partner, rose to a record $4.7 billion from $4.3 billion. The deficit with Mexico widened to a record $2.7 billion from $1.9 billion. The deficit with China rose to a record $8.7 billion from $8.6 billion. 
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