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		Home Page News You Can Use Trade Deficit Swells 17.1% To Record $489 Bil In '03 Tuesday February 17, 10:21 am ET By Jed Graham The U.S. trade deficit widened more than expected to a near-record $42.5 billion in December, bringing the full-year total to a record $489.4 billion, the Commerce Department said Friday. The trade gap expanded by $4.1 billion, or 10.8%, from November's 13-month low of $38.4 billion. December's deficit was the second biggest ever, behind the $42.9 billion gap last March. For the year, the deficit rose $71.3 billion, or 17%, from the old record of $418 billion in 2002. The goods deficit with China swelled to a record $124 billion in 2003 from $103 billion in 2002. Exports, though dipping 0.2% in December, ramped up strongly in the second half of the year. That's encouraged economists to think that the trade gap was stabilizing. November's smaller deficit even fueled hopes it would begin to narrow. But with U.S. growth far outpacing that of most major trading partners, even a weaker dollar has not slowed demand for imports. December's data "will bring people back to earth," said Nigel Gault, U.S. research director at Global Insight. "This will lead people to refocus on the size of deficit and how difficult it's going to be to bring it down." Still, the trade report wasn't all bad. The dip in exports was entirely due to a $1.5 billion decline in aircraft exports from November's unusually high level, Gault said. Otherwise, exports rose $1.3 billion. The $90.4 billion in exports was just below the prior month's three-year high of $90.6 billion. But imports rose $3.9 billion to a record $132.8 billion, driven by broad-based gains. Economists expected petroleum imports to rebound after November's surprise dip, but nonpetroleum imports also jumped 2.8%. On one hand, a recovery in global growth is boosting demand for U.S. exports, and a weaker dollar is helping domestic producers to price their goods more competitively. But these forces have been overpowered by even greater demand for imports driven by much faster growth in the U.S. that's been fueled by an aggressive monetary and fiscal policy. "The bottom line is the U.S. is consuming much more than it's producing," Gault said. Because of that overconsumption and a lack of savings, the U.S. has an insatiable appetite for foreign capital, needing to attract $1.5 billion each day. As the trade deficit keeps rising, so does the need for foreign capital, and that's been a key reason why the dollar has been under so much pressure. Eventually, as the dollar loses value, foreign-produced goods should become more expensive. That would rein in demand for imports, and eventually the trade gap would narrow. But the rise in import prices has been mild, despite the dollar's 13% drop against a broad basket of currencies and far bigger declines against the euro and some others. "Apparently, foreign exporters have been willing to absorb some of the price decline measured in their own currencies and the consequent squeeze on profit margins," Federal Reserve Chairman Alan Greenspan told Congress last week. That's one reason inflation has been so tame, despite the dollar's weakness, he said. But a Labor Department report on Friday showed import prices in January climbed much faster than expected. Import prices rose 1.3% from December, the most since last February, led by a 6.2% hike in petroleum prices. But even nonpetroleum import prices surprised, rising 0.7%, the most in 10 months. While nonoil import prices were up just 1.5% vs. a year ago, they've risen at a 4.4% rate the past three months. "The trend clearly indicates building inflationary pressures," wrote Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson. Gault expects the trade deficit to stabilize at a monthly average of $41.5 billion to $42 billion. He's encouraged by the rise in January import prices, which hints that the weak dollar is starting to have an impact on foreign producers. If the deficit continues to rise much from current levels, pressure is likely to increase on the dollar, he says. The risk to financial markets, he said, is "you can't be sure how much the dollar has to fall to stabilize" the trade gap. Back to Original Article: News You Can Use   Continue with: Bush Spending Yet To Alienate The Hard Core Dollar dips; Trichet's comment fall on deaf ears German Investor Confidence Fell for Second Month in February as Euro Rose 8 big mortgage mistakes and how to avoid them Mortgage refinancing frenzy stills Economy May Work in Bush's Favor Economy May Work in Bush's Favor Part Two The Business of Taxes Industrial Production Jumps 0.8 Percent Industrial Production Jumps 0.8 Percent Tokyo Stocks End Higher, Dollar Up on Yen Can retraining offset rush of jobs offshore? Should rental house investor sell to tenant? Why 'better late than never' doesn't apply to rent Americans may need to go on 'borrowing diet' Reports stir hopes of U.S. factory revival
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