Newspaper article THE JOURNAL RECORD

Shift in Economy to Imports Has Far-Reaching Implications

Newspaper article THE JOURNAL RECORD

Shift in Economy to Imports Has Far-Reaching Implications

Article excerpt

WASHINGTON - The American economy, long dominated by its free-spending consumers, is rapidly being transformed into one whose growth depends heavily on producing goods for foreign markets.

This shift, which economists say has become clearly visible in the last several months, has far-reaching implications. In the long run, it is the mechanism by which the nation will sooner or later redress its longstanding payments deficit, the amount by which what the United States buys from abroad exceeds what it sells.

In the short run, this shift appears to be the key to avoiding a recession as the economy heads into its sixth straight year of unbroken expansion, the longest since the Vietnam-stimulated 1960s.

Although the highly publicized monthly trade statistics suggest otherwise, the United States has made significant progress, beginning about a year ago, in raising exports and curbing imports other than oil, Reagan administration officials and most private analysts maintain. As a result, industrial output is rising and companies are hiring more factory workers.

Export volume rose at an annual rate of 18 percent during the first nine months of 1987, and the Morgan Guaranty Trust Co. estimates that the real net deficit will tumble by more than 27 percent in 1988, to $95.3 billion, after falling nearly 10 percent in 1987.

``This represents a major trend that will dominate the economic environment through the early 1990s,'' asserted Mickey D. Levy, senior vice president at Philadelphia's Fidelity Bank. ``It replaces the strong consumption and deteriorating trade deficit pattern that prevailed from 1980 through 1986.''

This improvement comes on both the export and import sides of the trade deficit as measured in volume. This tally directly relates to economic activity: production and jobs.

By contrast, the deficit as expressed in ever-depreciating current dollars, which hit a record $17.6 billion in October, is considered a poor indicator of trade flows, regardless of how eagerly the markets await the figures.

The increasing robustness of the trade sector comes, not coincidentally, at the same time that the consumer sector has begun to slow. Both these trends were evident well before the stock market plunge of mid-October.

American consumers have found their real incomes growing slowly - partly the result of higher prices for oil and other imported goods - as they saw their debts rising and their savings drawn down to levels even more meager than usual. The dive in stock prices subsequently shook consumer confidence but, as reflected in sales figures since then, apparently not enough to cause alarm. …

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