$108-Billion ’89 Trade Deficit Is Lowest in 5 Years

WASHINGTON â€”  The nation’s merchandise trade deficit fell sharply in December to $7.2 billion, reducing the deficit for all of 1989 to $108.6 billion, the best annual showing in five years, the Commerce Department reported Friday.

The December deficit was about $2 billion smaller than most analysts had expected, and the favorable figures caused some to predict that two years of gradual improvement in the nation’s trade picture could continue in 1990.

“We’re looking at figures as good as any we have seen in years,� said Barry Rogstad, president of the American Business Conference, a trade group representing mid-size growth companies.

“What is most interesting,� he said, “is that there is some evidence now that the manufacturing sector is regaining competitiveness, both at home and abroad.�

The 1989 deficit follows a 1988 imbalance of $118.5 billion and is the smallest since the $106.7-billion figure in 1984. Still, it was the sixth consecutive annual deficit exceeding $100 billion.

December’s deficit, down from $10.3 billion in November and the lowest monthly figure since the $6.8 billion posted in December, 1985, was attributable in large part to a surge in aircraft sales after settlement of the Boeing strike.

The restoration of one of U.S. industry’s most important exports helped boost foreign sales of American-made goods by $1 billion, of which about $744 million involved aircraft. In all, U.S. exports rose 2.4% to $31.1 billion in December.

Imports fell 5.9% to $38.3 billion for the month; despite record low temperatures and a strong increase in energy prices, oil imports actually declined for the month.

Economists are beginning to revise a previous consensus that the dramatic improvement in the U.S. trade balance since a peak deficit of $152.1 billion in 1987 had about run its course in 1989 and would peter out altogether this year.

A new consensus foresees continuing declines in the trade deficit as a sluggish economy dampens demand for imported goods and as exports of American-made products continue to rise, indicating that U.S. industry is able once again to compete in global markets.

Among the factors cited in support of this more optimistic view is the decline over several months of capital goods imports, as U.S. industries turn to U.S. suppliers for much of their equipment.

Other factors include a relatively stabilized dollar-yen exchange rate at a time when European currencies, especially the West German mark, have been rising in value.

Indeed, America posted a trade surplus of $1.5 billion with the European Community in 1989, compared to a deficit of $9.2 billion the previous year. America’s chronic deficit with Japan declined to $49 billion in 1989 from $51.8 billion in 1988.

“We see a steady trend toward improvement in the trade deficit in coming years,� said Giulio Martini, an analyst with Sanford C. Bernstein & Co. of New York.

“We will see oil imports stabilize at a higher level,� he said. “But, excluding oil, there is a clear and entrenched trend toward improvement on the import side. Whether that will continue slower or faster depends on what happens to the dollar this year.�

David Wyss, a senior economist with Data Resources Inc. in Lexington, Mass., said that the December figures might cause the economic forecasting firm to modify its prediction that the trade deficit would stop improving this year.

“This may be an important sign,� he said. “We may have to revise our forecast for 1990.�

In a separate report, the Federal Reserve Board said that industrial production tumbled 1.2% in January, and factory use fell 1.2 percentage points to 81.9% of capacity, down sharply from the 84.7% utilization rate of a year earlier.

Both indicators served as a sharp reminder that America’s manufacturing sector continues to experience a marked slowdown.

Two factors figured in the production decline: a 10.7% drop in utility company output due to an abnormally warm January and an expected production fall-off in the troubled auto industry.