Manufacturers' group sees this spring as turning point for US trade deficit
Spring will mark the major turnaround in the US trade deficit. At least that's the forecast from the National Association of Manufacturers, a trade organization representing most of the nation's producers.
``I expect we'll see spectacularly good numbers late in 1988,'' predicts Jerry Jasinowski, chief economist for NAM, whose members are enjoying an export boom.
Like other economists, Mr. Jasinowski is not optimistic that the November trade numbers, due to be released today, will show huge improvement from the record $17.6 billion reported in October. Instead, the consensus forecast is for a trade deficit of about $14 billion to $15 billion. This could mean the total deficit for 1987 will be a record.
Jasinowski believes improvement will come as the dollar stabilizes and the economy slows down. Since its peak in 1985, the dollar is off about 50 percent compared to the West German mark and the Japanese yen. The NAM economist predicts the slide in the dollar will moderate, with the currency falling only another 5-7 percent in 1988.
With the lower dollar, US companies are beginning to shift their buying from foreign sources, says NAM president Alexander Trowbridge. ``Now, businessmen are asking if there is a cost advantage of doing business at home,'' he says. At current exchange rates, he points out, US labor costs are equal to Japanese labor costs.
This would be a welcome change, since about 30 percent of the trade deficit is the result of imports of parts and components for products eventually put together in the US. But even this is changing. Japanese auto companies, for example, which used to bring over parts for their US-made cars from Japan, are now buying parts from US suppliers.
For the year, Jasinowski is expecting only 2 percent real growth in gross national product (GNP), a measure of the nation's production of goods and services. This is about in line with the national consensus. He sees no sign of a recession on the horizon. He predicts the miserly growth in the economy will not cause interest rates to fall much, with long-term Treasury bonds remaining at about the 9 percent level. This is because the US depends on foreign capital to finance much of its budget deficit.
The slowdown in the economy will take place because of a contraction in consumer spending, the manufacturers say. Indicators, however, show this has not occurred yet. Yesterday, the government said retail sales adjusted for seasonal differences rose 0.7 percent in December, the biggest increase in four months. Sales of big-ticket items such as cars and boats remain strong as well. (Clear sailing for yacht sales, Page 11).
The strength in the economy will come from capital spending and exports. Plant improvements will add about 30 percent to economic growth while exports will expand to $40 billion, or half of the gain in GNP, NAM says.
Unfortunately, as US exports swell, unemployment overseas is likely to rise. ``US companies are gaining share in markets overseas,'' agrees Gordon Richards, another NAM economist. ``To some extent it is a zero sum game.''