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Trade gap narrowing - but not as quickly as anticipated. Americans keep buying foreign goods, while export boom slows

The improvement in the United States trade deficit appears to be stalling. The boom in exports, which has powered much of the growth in the economy, is slowing, while Americans continue to consume foreign-produced goods at a hefty clip.

At the same time, the US trade gap with its top trading partners - Japan, the European Community, and Canada - is widening slightly.

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Many economists, in fact, were unhappy yesterday when the government reported the October trade deficit, on a seasonally adjusted basis, had shrunk to $10.35 billion from $10.67 billion in September.

``I find these numbers disturbing,'' says Jerry Jasinowski, chief economist at the National Association of Manufacturers (NAM) in Washington. ``The October numbers only look good on the surface,'' adds Sung Won Sohn, senior vice-president and chief economist at Norwest Corporation in Minneapolis.

Of particular concern to economists is the slowing in exports. The Commerce Department said exports dropped 1.1 percent. A major reason for the drop was a fall in agricultural exports because of the drought. ``We just did not have any grain to sell,'' says David Wyss, an economist at DRI-McGraw Hill in Lexington, Mass.

Despite the drop in October exports, the government reported that exports for the first 10 months are running 28 percent higher than last year. But Mr. Wyss expects this growth rate will slow to 9 or 10 percent in 1989.

Some economists say a major reason for the slowdown in export growth is that US business is running out of factory capacity to produce more goods. This view was reinforced yesterday when the government reported that the factory operating rate rose 0.2 percentage points to 84.2 percent last month, its highest level in nine years. At the same time, industrial production perked up.

This growth rate, combined with the slowdown in exports, presents a dilemma for the Federal Reserve Board. A move by the Fed to raise interest rates to slow the economy could also strengthen the dollar. A stronger dollar makes it harder for exporters to sell their goods.

``I think this shows you can't use monetary pressure to do everything for the economy,'' says David Hale, chief economist at Kemper Financial Services in Chicago. Mr. Hale points to the problems both Australia and the United Kingdom are having with strong domestic economies, racheting interest rates, and soaring trade deficits. Instead, he says, the US government should look for ways to cut the budget deficit.

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The administration, for its part, did not view the trade numbers adversely. US Trade Representative Clayton Yeutter said the number showed the trend toward improvement was continuing, citing a trade deficit that has been running at a $136 billion annual rate, 20 percent below the record trade deficit of $170.3 billion rung up last year.

One of George Bush's economic advisers, Richard Rahn, chief economist at the US Chamber of Commerce, also is not concerned.

``There is nothing here of any danger to the republic,'' says Mr. Rahn, who is telling President-elect Bush that the trade problem will correct itself. ``Concentrate on maintaining a healthy economy, reduce the growth of government spending, and don't increase taxes,'' he says.

Mr. Jasinowski, however, says the new administration will have to ``hit the ground running'' to prevent the improvement in the trade numbers from stalling out. ``It would be wise for the new administration to launch a major market access and export promotion drive as part of its priority efforts,'' says the NAM economist. In a report issued Tuesday, the NAM also recommended that the administration ``focus on the exchange rate,'' making sure it reflects the economic fundamentals. The NAM called on the administration to set a goal of eliminating the trade deficit by 1995.

It is likely the pressure to act will start to build on the new administration when the November trade numbers are issued next month.

Helen Hotchkiss, author of the Wall Street Trade Report, forecasts the trade deficit will worsen in November. She says that the decline in imports over the past two months is over. In addition, Japanese trade data for November indicate that its trade gap with the US widened last month. And oil imports in November ran at 8 million barrels a day, up from 7.5 million barrels a day in October.

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