- The Washington Times - Saturday, July 20, 2002

Americans' ravenous appetite for foreign-made cars, TVs and clothes propelled the U.S. trade deficit to a record $37.6 billion in May.
The deficit was 4.1 percent higher than the $36.1 billion trade gap reported for April, the Commerce Department reported yesterday. Despite a modest increase in exports, imports rose more than twice as fast.
"We are buying up most everything again," said economist Joel Naroff of Naroff Economic Advisors. "Rising imports are another sign of improving economic activity, even if they did drive up the trade deficit."
In another report, consumer prices edged up 0.1 percent in June, suggesting that inflation still is not a risk to the economy as it struggles to return to robust health.
With inflation under wraps, the Federal Reserve has leeway to leave short-term interest rates at 40-year lows to help the recovery. Growing numbers of economists say rates will be left unchanged for the rest of the year, a notion reinforced by yesterday's dramatic stock market swoon.
On Wall Street, the Dow Jones Industrial Average plunged 390 points to close at 8,019, after being down as much as 442 points in the final minutes of the session. It was the average's seventh-biggest point drop in history and its lowest close in almost four years.
Economists worry that sinking stocks might crimp consumer spending and business investment, which could weaken the recovery.
The latest reading on the Labor Department's Consumer Price Index, a closely watched inflation gauge, was lower than the 0.2 percent increase analysts were forecasting and came after prices were flat in May. The "core" rate of inflation, which excludes volatile food and energy prices, nudged up 0.1 percent in June, down from a 0.2 percent advance the previous month.
In the trade report, imports of goods and services increased 1.8 percent to $118.3 billion in May as the U.S. economic recovery helped boost consumer demand for foreign-made goods.
Imports of automobiles and parts, and of consumer goods a broad category of items that includes electronics, apparel, furniture and household appliances climbed to new monthly records.
Worries about a strike by West Coast dock workers may have hastened imports and contributed to some of the rise in May, said Tim O'Neill, chief economist at the Bank of Montreal.
Exports might have been affected as well, he said.
Exports rose 0.7 percent in May to $80.6 billion, the highest level in nine months. Although national economies around the globe are regaining strength after a worldwide slump, they are recovering more slowly than the United States, thus restraining demand for U.S. products.
Going forward, a weaker U.S. dollar and healing economies abroad should help bolster U.S. exports, economists said.
High-flying for years, the dollar has recently lost some altitude. Economists said it would take time for that to affect trade flows. U.S. manufacturers say that the strong dollar has hurt them by making their goods expensive overseas.
"The really good news is that the groundwork is being laid for an acceleration in exports," said David Huether, chief economist at the National Association of Manufacturers. "Given the lag times associated with currency fluctuations, we should see positive effects from the lower dollar on U.S. exports in the second half of the year."
In the meantime, the worsening trade picture in May could act as a drag on the economy's growth in the April-June quarter, said Maury Harris, chief economist at UBS Warburg. He is forecasting a 2 percent rate of increase in second-quarter gross domestic product, down from a 3 percent growth rate. The government will release its estimate for second-quarter GDP at the end of the month.

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