Trade Deficit Declines for 2nd Month in Row : Falls to $12.6 Billion in September; Weak Dollar Beginning to Shrink Imports by Increasing Prices

By OSWALD JOHNSTON

Oct. 31, 1986 12 AM PT

Times Staff Writer

WASHINGTON — The nation’s merchandise trade deficit narrowed for the second month in a row to $12.6 billion in September, the Commerce Department reported Thursday.

The decline, from $13.3 billion in August, was slightly larger than expected, and it was greeted by economists in and out of government as a decisive turn for the better for trade.

Only two months ago, a preliminary report that the gap between exports and imports had ballooned to a record $18 billion in July panicked commodity and exchange markets and may have helped provoke the massive early September sell-off on Wall Street.

July Deficit Reduced

But the subsequent report that August’s deficit had shrunk to $13.3 billion led to hopes that the worst had passed. A later revision reduced the July deficit to $16 billion.

Thursday’s report was welcome news to Republicans seeking political ammunition in the final days of the election campaign. President Reagan made use of the report during a campaign stop in Nevada Thursday to suggest that the economy is on the right track and that jobs lost to the trade imbalance may be regained.

The report provided several details that economists saw as encouraging. Chief among these was the fact that the deficit in manufactured goods fell by $1.5 billion to $10.5 billion. Agricultural trade, which had shown an unprecedented deficit from May through July, achieved a modest surplus--$138 million--for the second consecutive month.

Imports, at $30.1 billion, were below the $32-billion monthly average of earlier this year, a clear sign that the weakening dollar has begun to cut into import volume. Less encouraging, however, was the fact that U.S. exports, at $17.5 billion, were slightly below the July and August levels and are still under the monthly average of earlier this year.

In a related report, the Labor Department said that the prices of imported goods have risen 0.7% from June to September and that non-petroleum import prices have shot up 10.2% since September, 1985, when the Administration took action, in concert with the main U.S. trading partners, to lower the value of the dollar.

Meanwhile, there was additional good economic news in a separate Commerce Department report that new home sales surged 10.6% in September, after five consecutive monthly declines.

The Administration seized on these upbeat reports--the last economic statistics to be published before Tuesday’s vote--as evidence that the trade deficit, heading for a record $170 billion this year, has at last begun to fall and that the economy is on the verge of renewed strong growth.

“We see no end in sight to what will most likely prove to be the strongest post-World War II expansion on record,” said White House spokesman Larry Speakes, accompanying President Reagan on a campaign swing through several Western states.

Democrats Ignore Trend

Democrats, hoping to make the economy, especially trade, an issue in the Farm Belt and in industrial states, ignored the favorable trend reported Thursday and concentrated on the still gloomy certainty that the year’s overall trade deficit would be the highest ever.

Senate Minority Leader Robert C. Byrd (D-W.Va.) raised the specter of the 1930s, warning that the “trade crisis continues to threaten America’s economy more profoundly than anything since the Great Depression.”

But private economists, with varying degrees of caution and with occasional caveats, tended to agree more with the Administration. In sum, there seems to be consensus that the worst is over--but that unqualified good news on trade is at least another year or two away.

Figure ‘an Aberration’

“For sure, the July deficit was an aberration that got people scared,” said Nariman Mehravesh of Wharton Econometrics in Philadelphia. “Now we are edging down, but there won’t be tremendous or rapid improvement.”

C. Fred Bergsten of the Institute for International Economics, who has been predicting gradual trade improvement for several months, said Thursday that “better figures for two months in a row suggest that the turn in trade is at hand.”

But Bergsten, a Treasury official in the Jimmy Carter Administration, warned that it will take at least until 1988 to bring the deficit as low as $75 billion or $80 billion a year and that the dollar would have to begin to fall against currencies other than the Japanese yen and the German mark, against which almost all of the decline has so far taken place.