Newspaper article THE JOURNAL RECORD

Trade Deficit Sets New Record, Raising Fears of Fed Action

Newspaper article THE JOURNAL RECORD

Trade Deficit Sets New Record, Raising Fears of Fed Action

Article excerpt

WASHINGTON (AP) -- Americans' appetite for foreign cars, machinery and consumer goods propelled the trade deficit in July to a monthly record of $25.2 billion -- a sore spot in an otherwise vibrant U.S. economy.

The trade deficit surpassed the June imbalance of $24.6 billion, as imports hit an all-time high and the country's deficit with Japan, China and Western Europe all set records, the Commerce Department said Tuesday.

The growing deficit and other bad news, including the dollar's weakness against the Japanese yen, upset investors, who wondered whether a weaker dollar, by pushing up the price of imports, would make the Federal Reserve raise interest rates again to combat inflation.

So far this year, the deficit is running at an annual rate of $247 billion, far above last year's record deficit of $164.3 billion.

U.S. consumers, buoyed by the lowest unemployment level in three decades and enjoying the longest economic expansion in peacetime history, have been snapping up foreign products. In July, imports surged by 1 percent to an all-time high of $104.2 billion as U.S. demand for foreign autos, capital goods and consumer goods all set monthly records.

"Vociferous demand for imports persists, reflecting a U.S. economy that is very strong," said Lynn Reaser, an economist with Bank of America Private Bank.

But foreign demand for U.S. products, while showing signs of picking up, continues to lag behind imports. Exports of U.S. goods and services rose 0.5 percent in July to $79 billion, their highest level since last November. American manufacturers and farmers are slowly recovering from the Asian financial crisis, which dampened demand for their products.

"We're the world's greatest buyer of goods and services globally right now and that's not going to change for the rest of the year," said Tim O'Neill, chief economist for the Bank of Montreal and Harris Bank.

The U.S. economy could face problems if the trade trends continue, economist said, possibly leading to a sharp drop in the dollar's value, driving down American stock and bond prices as foreign investors dump their dollar-denominated holdings. …

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