Weak dollar brightens trade picture. American export rise creates jobs
The sinking dollar is prying the weight of the trade deficit off the economy. United States manufacturers are selling more tractors, airplanes, chemicals, and computers to make up for imports of autos, electronics, and steel.
The latest evidence of this improvement came yesterday when the Department of Commerce reported the merchandise trade deficit had narrowed to $14.1 billion in September, the smallest monthly gap since May. In August the trade gap was $15 billion.
An important reason for the smaller deficit was an $800 million increase in exports. For seven consecutive months, exports have totaled more than $20 billion. The White House, which was cheered by the improvement, pointed out that 25 percent of the growth in the nation's gross national product is coming from export sales. ``Even though the monthly numbers may not show it, the real effect of trade on jobs has been positive,'' says White House spokesman B. Jay Cooper.
The better trade numbers spilled over to the battered stock and currency markets. By mid-afternoon, the Dow Jones industrial average rose 56 points to 1,955. The dollar rebounded against the Japanese yen and the West German mark.
Traders were also cheered by reports of progress in reducing the federal budget deficit. According to officials familiar with the negotiations, the bargainers are looking at a plan to pare $30 billion off the fiscal year 1988 budget and $45 billion next year. Although a broad outline may be finalized as early as today, negotiators are still bickering over specifics.
The deficit talks are being scrutinzed carefully overseas, where foreign investors are closely tuned in. In London, Richard O'Brien, chief economist at the American Express Bank, says, ``The key thing the markets are watching is the budget talks.''
Mindful that the talks are being watched by the world, Sen. Bob Packwood (R) of Oregon warned, ``If we emerge with a specious package, that may be hard to sell.''
Even though there is improvement in the trade numbers, economists warned against too much optimism.
Imports traditionally pick up in October, reflecting orders flowing into the US before the Christmas season. A slowdown overseas would also choke off some of the export growth. Furthermore, trade numbers are not considered very accurate and are generally revised as customs forms are analyzed.
``You can't read too much into the month-to-month numbers,'' says Robert Dieli, vice-president and economist at Northern Trust Co. in Chicago.
Even so, the export boom is continuing.
In Peoria, Ill., Caterpillar, Inc., the nation's fourth largest exporter, says it is still experiencing robust demand for tractors, off-highway trucks, loader graders, and large loaders. Demand for Caterpillar products is up in Canada, the Far East, and Latin America. ``Sales last quarter were the best since 1981,'' says spokesman William Lane. Better sales have led to 1,000 new jobs in its factories in Peoria, Aurora, Ill. and York, Pa.
At the same time Caterpillar's exports are rising, Mr. Lane says competition from imports is lessening. Industry analysts say Komatsu, the giant Japanese construction company, is losing some orders because of the strong yen. When the yen is high, it makes Japanese products more expensive in America.
The lower valued dollar has prompted General Motors to gear up a sales campaign to sell its sporty Corsica and Beretta models in Japan next year. Several weeks ago, Ford Motor Company said it would start to sell the highly successful Taurus models to the Japanese.
The surge in exports is also helping US shipping ports. Steve Malin, an economist at the Conference Board, a private research organization, says ports around the country are reporting more business. One of the strongest regions, he says, is in the southeast.
The export drive is one of the key reasons for job growth in the manufacturing sector last month. Janet Norwood, commissioner of the Bureau of Labor Statistics, told Congress this month that the furniture, rubber, plastics, and printing and publishing industries reached all-time employment levels. With the dollar devalued, she predicted other businesses will likely build up their export business.
This view is echoed by the White House. ``We'll really start to see some improvement in the numbers next year,'' Mr. Cooper says.