The US trade deficit reached a new record in August as buoyant consumer spending continued to suck in imports, according to official figures yesterday.
Despite the figures, which highlighted weakness abroad and what some economists consider a growing threat to the dollar and the US economy, investors remained unworried.
The dollar hardly moved and share prices continued to rise, as they have for much of the past fortnight, on hopes of a faster turnaround, with the Standard & Poor's 500 stock index, as of early afternoon trade on Friday, set to cap its biggest seven-day rally in nearly 30 years.
The Commerce Department said the trade deficit grew from a revised $35.1 billion (€34 billion) in July to $38.5 billion in August as exports fell for the first time in six months and imports rose to their highest level this year. The deficit has widened significantly this year as the US economy recovered faster and more steadily than those of most of its big trading partners.
Many economists fear that this means a risk of turmoil in financial markets. The US must attract a net $1 billion a day in foreign capital to sustain it, keep the dollar and equity markets from falling and stop interest rates from rising.
Foreign investors are continuing to buy US assets on the basis that the US, for all its travails, remains a safer and better place to invest than most alternatives. But concerns have been raised about the extent to which these funds appear increasingly to be financing consumption rather than investment.
The size of the broadest measure of the deficit, the current account, is approaching 5 per cent of US gross domestic product, a level generally associated with currency crises in other advanced nations and emerging markets.
Some economists argue that the dominance of the US economy and its currency places it beyond the realm of such comparison, but a debate rages among many economists about whether any future adjustment will be smooth and gradual rather than abrupt and destabilising. - (Financial Times Service)
