Global Policy Forum

By David Leonhardt

Aided by a surge in December, the trade deficit easily reached a record last year, the Commerce Department reported yesterday, a sign that economic growth around the world remains even weaker than it does in the United States.

The value of American goods and services exported to other countries declined for the second consecutive year, as Europe, Japan and South American all cut back on their purchases even though the dollar was losing value. Imports rose, with those from China leading the increase, sending the trade deficit to $435.2 billion in 2002, up from $358 billion in 2001, the report said.

The size of December's deficit — $44.2 billion, up 10 percent from November — surprised analysts and was among a handful of disappointing economic reports released yesterday. The Standard & Poor 500-stock index lost 8.03 points, or almost 1 percent, to close at 837.10.

Since the start of the year, "we had a string of hopeful data," said Ethan Harris, chief United States economist at Lehman Brothers. "We're going to see some of that strength fade now."

The number of people filing initial claims for jobless benefits rose last week to the highest level since the end of last year, the Labor Department said. A survey by the Philadelphia Federal Reserve suggested that a nascent manufacturing recovery might be slowing. According to the Conference Board, a research group in New York, its index of leading indicators, intended to forecast the economy's near-term movement, dropped slightly, its first decline since September.

In the one sign of economic strength, the Labor Department said the prices that companies received for their goods jumped in January. The report provided more evidence, economists said, that the weak growth was unlikely to cause deflation, a sustained decline in prices of the sort that has recently afflicted Japan.

Since the recession in this country appeared to end in late 2001, the economy has lurched through one cycle after another of hope-inducing growth followed by disappointment. With companies still working through the excesses of the 1990's bubble, and the fear of an Iraq war now compounding public uncertainty, the strong periods have yet to last long enough for executives to add many new workers.

"We got off to a surprisingly good start this year," said Maury Harris, chief North American economist at UBS Warburg. Now, however, "we've got this environment of heightened caution," he said.

The end of the decade-long expansion has caused the dollar to lose about 15 percent of its value relative to the euro since late 2000. But even if the United States seems more vulnerable than it did in the late 90's, it remains economically stronger than its closest rivals, and the currency decline has not been large enough to lower the trade deficit.

Instead, the current account deficit, which includes profits on investments as well as trade in goods and services, was equivalent to about 5 percent of the American economy last year, its largest share ever, according to UBS Warburg.

"The U.S. has a 100-pound pack on its back that it's hauling around — the global economy," Mr. Harris of Lehman Brothers said. "It's a big demand on an economy that's not all that strong to begin with."

The decline in exports was broad based in 2002. American companies sold less industrial equipment, fewer telecommunications services, less meat, less newsprint, less tobacco and fewer books to other countries than they had in 2001.

At the same time, foreign companies increased their sales of consumer items in the United States — including oil, television sets, appliances, wine and baked goods — to offset a decline in the sales of products like chemicals and aircraft engines.

American computer makers particularly struggled to keep up with foreign rivals. While computer exports fell 12.6 percent, to $9.2 billion, imports jumped 27.6 percent, to $16.2 billion.

Over all, the United States had its biggest trade deficit with China, followed by the European Union, Japan and Canada.

Most economists consider large trade deficits to be unsustainable. Eventually, they say, the dollar will probably decline by enough to make American exports more affordable. That would help manufacturing industries — which have cut two million jobs in the last three years — compete with foreign companies, Mr. Harris of UBS Warburg said. But it would probably also lead to an increase in inflation and interest rates that could prevent economic growth from reaching the pace it had in the late 90's.

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