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Trade Deficit Hits All-Time High

By Fred Barbash
Washington Post Staff Writer
Tuesday, April 12, 2005; 12:18 PM

The U.S. trade deficit widened to a record monthly gap of $61 billion in February, the Commerce Department reported today, leading some analysts to revise downward their estimates for the country's economic growth.

The increase in the value of imports over exports exceeded the expectations of economists, in part because of surging oil prices and heavy demand for foreign-made textile products and automobiles.

The deficit, which has steadily deteriorated, was 2.7 percent higher in February than the previous record of $59.42 billion set in November.

The trend defied predictions by the administration, among others, that the declining value of the dollar would help close the trade gap as foreigners buy cheaper American goods and Americans buy fewer foreign goods.

The trend of an ever-growing trade gap is perceived by many to be a drag on growth, and thus on the overall health of the economy, because money spent by Americans on foreign goods and services is money not spent domestically.

"The deteriorating trade situation is certainly not new news," Stephen Stanley, chief economist for Greenwich Capital Management wrote in a note to clients. "What is news is that we are now poised to post back-to-back massive increases in the trade deficit in the fourth quarter of last year and the first quarter of this year.

"It looks like trade could take away more than a percentage point" from gross domestic product in the first quarter, he projected.

"The deficit is continuing to rise," Rick Egelton, chief economist with BMO Financial Group told the Reuters news agency, "and it is kind of discouraging that we have seen no growth in exports."

Exports in February were effectively flat, rising by only about $100 million to $100.5 billion, according to the figures. Imports increased $2.6 billion to $161.5 billion, accounting for the gap.

The Commerce Department said that the February imbalance was up 4.3 percent from a $58.5 billion trade gap in January.

Demand for foreign petroleum products shot up 10.3 percent to $18.2 billion, the second highest level on record, surpassed only by $19.6 billion in imports of petroleum last November.

This was due almost entirely to an increase in the price of oil -- to about $37 a barrel for imported crude during the month from about $35 a barrel as the volume of imports actually declined. (Current prices are higher for crude oil futures, which reflect the price of oil to be delivered later in the year.) Imports of textiles and clothing from China rose by 9.8 percent, according to the figures released today.

Imports of autos and auto parts, consumer goods and industrial supplies and materials set new records.

As the deficit mounts, so does America's overall indebtedness to foreigners, which now totals about $3 trillion. Some economists worry about the possibility of panic selling by the foreign holders of U.S. debt, especially with the drop in the value of the dollars, which in turn could set off a major sell-off in the U.S. stock market.

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