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Spike in trade deficit forces markets to drop

WASHINGTON - The monthly trade deficit hit $58.3-billion in January, the second-highest in history, as clothing imports from China surged with the lifting of global quotas.

Consumer confidence, however, rose at the fastest pace in seven months in early March, according to an Associated Press survey.

The Commerce Department's trade report released Friday showed a January trade gap that was 4.5 percent higher than December's $55.7-billion deficit and was just below the monthly record of $59.4-billion set in November.

The U.S. trade gap surged by 24.3 percent in 2004 to set a record for the third straight year at $617.1-billion and private economists said 2005 was likely to post another record trade imbalance.

In other economic news, the AP-Ipsos consumer confidence index posted a gain of 6.4 percent in early March to 84.2. It was the biggest one-month advance since August and reflected newfound optimism about job prospects.

Financial markets reacted negatively to news of the ballooning trade deficit. The Dow Jones industrial average fell 77.15 points to close at 10,774.36, and the dollar declined against the 12-nation euro and the Japanese yen.

Private economists contend the chief culprit in the country's trade woes was a global imbalance in growth, with the U.S. economy forging ahead - boosting consumer demand - while the economies of Europe and Japan have been sluggish, dampening demand for U.S. exports.

"American consumers continue to aggressively shop and they are buying lots of imported products from consumer electronics and apparel to vehicles and everything in between," said Mark Zandi, chief economist at Economy.com.

The dollar has been declining in value for three years, a development that should boost U.S. exports by making them cheaper in foreign markets while curtailing imports by making them more expensive for American consumers. However, analysts said such a change works with a long lag time.

Zandi said the dollar has not declined against China's currency because of that nation's monetary policy, which American manufacturers contend gives Chinese companies a huge competitive advantage.

The administration has been pressuring China to let the yuan float freely in currency markets, but China has resisted that pressure.

As usual, the largest deficit with a single country was recorded with China, an imbalance of $15.3-billion in January that was driven higher by a 33.6 percent increase in shipments of textiles, reflecting the elimination of global quotas.

[Last modified March 12, 2005, 00:48:09]