Consumer Spending Helps Widen Trade Gap : Economy: Increased purchases of imported cars contributed. Some said July’s jump to $5.9 billion was a sign of recovery.

WASHINGTON â€”  The nation’s foreign trade deficit surged during July, the government reported Thursday, as Americans stepped up their purchases of imported cars and other consumer goods--another sign that the economy is recovering.

Commerce Department figures showed that imports exceeded exports by $5.9 billion during the month, up sharply from a $3.79-billion gap recorded in June. The trade deficit for July was the largest the nation has posted since last January.

The increase in import buying--6.2%, to $41.16 billion--was the major factor in widening the deficit. Exports rose a scant 0.8% in July--to $35.27 billion--after falling the two previous months. But it was not enough to keep the deficit in check.

Despite the large increase, economists welcomed Thursday’s report as good news for the American economy, saying such increases frequently are a sign that consumers may be beginning to spend again--a crucial factor in spurring the recovery.

“The rise in the deficit doesn’t trouble us,� said David Rolley, an economist at DRI-McGraw Hill, an economic forecasting firm in Lexington, Mass.

Another sign that the economy is slowly improving came in a companion report from the Labor Department that first-time claims for unemployment benefits sharply declined in early September.

The department said 402,000 Americans filed initial jobless claims--down 17,000 from the previous week’s level of 419,000. But because the week included Labor Day, officials said the week’s figures may have been skewed.

Despite Thursday’s statistics, however, analysts say there have been few other signs of a consumer-led recovery and, in fact, some indicators continue to be bearish.

Even with sharply lower interest rates and a gradual rise in industrial production and other economic indicators, consumer confidence is mired below pre-recessionary levels, indicating that most Americans are still wary about the state of the economy.

Earlier this past week, the Commerce Department reported that residential building permits fell in August, while the Federal Reserve Board published a regional survey of economic conditions that revealed continued weakness in many areas.

Analysts also warned that the trade deficit will probably continue to grow as the economy strengthens and consumers demand more imported goods.

“The recovery will bring on imports, so we should be prepared for higher numbers,� noted Larry Kimbell, an economist with the WEFA Group, an economic forecasting firm in Bala-Cynwyd, Pa.

But economists were generally heartened by the resumption in July of the rise in U.S. exports, which have been the primary engine that has been pulling the nation’s economy during the past year’s recession.

During the past year, the relatively low value of the dollar compared to other currencies has helped U.S. exports of manufactured goods, creating jobs at home and offsetting the slump in the rest of the domestic economy.

“It’s one of the few sectors that has been driving the economy,� DRI-McGraw Hill’s Rolley said.

The impact of the growth in exports of manufactured goods on the trade deficit was even more noticeable after oil imports were excluded from the trade figures. Not counting petroleum products, the trade deficit was $2.4 billion.

The widening of the overall trade gap in July was the largest since a deficit of $7.38 billion in January. And the latest figures were in stark contrast to earlier months.

In June, the deficit was $3.79 billion, the narrowest gap between exports and imports since March 1983.

The trade gap has been narrowing steadily since 1987, when it hit a record $152 billion.

So far this year, it is running at a seasonally adjusted annual rate of $61.6 billion, compared to $101.72 billion in 1990. If the current rate holds, it would be the smallest gap since $52.4 billion in 1983.

Imports of consumer goods, including clothing, televisions and video recorders, jumped $1.11 billion in July to a seasonally adjusted $9.24 billion, the department said.

Auto imports also rose by a sharp $632 million in July to a seasonally adjusted $7.21 billion.

Business equipment imports, including iron, steel, computers and semiconductors, rose $565.2 million in July to a seasonally adjusted $10.41 billion.

Trade Deficit

Billions of dollars, seasonally adjusted; import figures exclude shipping and insurance.

July, ‘91: 5.90

June, ‘91: 3.79

July, ‘90: 9.24

Source: Commerce Department