The U.S. merchandise trade deficit narrowed to $12.5 billion in February, reflecting the sharp drop in world oil prices and the first real impact of efforts to stabilize the dollar, the Commerce Department reported yesterday.
The February trade figure represents a 24 percent drop from the record high in January and signals what some economists believe could be a turning point in the U.S. trade picture. The brightest spot was the trade performance of American manufacturing companies.
Despite the February drop from the January level, the trade deficit is still running at a record annual rate and, unless it continues to fall steeply, it could break last year's record $148.5 billion deficit.
Oil prices continued to fall yesterday and hit a new low on the New York Mercantile Exchange, where West Texas Intermediate dropped to $11.44 a barrel on a contract for May delivery.
The favorable news on trade and oil prices gave the stock market a big lift, and the Dow Jones industrial average rose nearly 30 points before easing in the final hour. The average closed up 11.02 at 1821.72. Details on Page C11.
White House spokesman Larry Speakes hailed the February trade figures as "the start of a fairly steady decline in the trade deficit." Commerce Secretary Malcolm Baldrige said "the lower dollar should lead to further improvements later in the year."
Private analysts agreed, citing a 30 percent drop in the value of the dollar since its peak last March, as well as the falling oil prices, which were not fully reflected in the February figures.
The dollar has taken its greatest tumble because of a coordinated effort last September by finance ministers of the United States, Great Britain, Japan, West Germany and France to adjust currency values against the dollar.
Jerry Jasinowski, executive vice president and chief economist of the National Association of Manufacturers, predicted the 1986 trade deficit would fall to about $140 billion. Such a drop would mark the first time in the 1980s that the trade deficit has decreased and would stem a steep decline in the U.S. trade performance during the past four years.
"I think we are on our way back to recovery," said Michael Evans of Evans Economics, a Washington consulting firm. "We've finally seen the peak of this thing." Nonetheless, he forecasted a slight increase in the trade deficit this year, to $150 billion to $155 billion.
The February improvement, especially in the area of manufacturered goods, comes as Congress is about to consider trade legislation designed to protect U.S. manufacturers from foreign competition.
Speakes said the upturn in exports "will mean more jobs for workers, meaning further expansion of the U.S. economy. The accompanying drop in inflation and the sharp rise in personal income means only one thing -- increasing prosperity for a growing number of Americans."
The February figures showed exports of manufactured goods increased 7 percent, to $12.2 billion. At the same time, imports of manufactured goods decreased by 5.5 percent, to $22.2 billion. The improved U.S. export performance combined with a decline in imports produced a positive swing of $2 billion in manufacturing trade.
"The export number is the more positive development, the more important part of the news," said Evans.
Contributing to the drop in manufactured imports, the value of shipments of Japanese cars dropped by more than 20 percent in February over January, to $1.4 billion. As a result of the decline in car shipments, the trade deficit with Japan also dropped 20 percent, although at $4.3 billion it remains the highest with any nation.
Steel imports, however, shot up above the 2 million-ton mark despite a 17-month campaign by President Reagan to impose limits. The American Iron and Steel Institute said imports last month took 26.6 percent of the U.S. market. Commerce Undersecretary Bruce Smart said, however, that monthly figures fail to show the true import picture, and the American Institute for Imported Steel noted a close to 20 percent decrease in steel imports in the first two months of this year, compared with the same period in 1985.
Overall, imports dropped by 9.7 percent, to $30.3 billion, while exports increased 4.3 percent, to $17.7 percent, which is the highest monthly level since last June.
While overseas sales of manufactured goods increased, however, farm exports fell 3.6 percent, to $1.9 billion. Farm imports also dropped, however, so the trade surplus in the agriculture area actually increased by almost $200 million.
February oil imports totaled $3.8 billion, a drop of 28 percent, reflecting both a decrease in prices and a cut in the amount purchased. This import decrease should continue with the expected drop in oil consumption as the weather turns warmer and as the contract prices reflected in the trade figure moves closer to current prices on the spot market, which are far lower.
The trade deficit with Western Europe also narrowed sharply, from $3 billion to $1.9 billion. The deficit with Canada increased slightly, from $1.7 billion to $1.9 billion. Even with the drop in oil imports, the United States continued to maintain a $1.2 billion trade deficit with OPEC nations, a decrease of $600 million.
Trade deficits with other major trading partners also decreased: Taiwan, $1.1 billion to $1 billion; Hong Kong, $545.2 million to $435.5 million; South Korea, $529.9 million to $407.6 million; Mexico, $498.9 million to $428.4 million; and Brazil, $404.8 million to $376.8 million.