WASHINGTON -- The deficit in the broadest measure of trade swelled to a record $136.1 billion in the first three months of 2003 as war tensions stoked the prices of imported crude oil and other petroleum products.
The latest snapshot of trade activity reported by the Commerce Department Thursday shows that the mushrooming "current account" deficit in the January-March quarter was 5.8 percent larger than the previous record deficit of $128.6 billion set in the fourth quarter of 2002.
The Bush administration believes the way to deal with swelling trade deficits is for other countries to remove trade barriers, rather than raising barriers to imports coming into the United States. That would allow U.S. companies to more freely do business in overseas markets, thus boosting America's global competitiveness, the administration says.
But critics say growing deficits are proof that the administration's free-trade policies aren't working. U.S. companies have moved operations overseas, while imports flood into the United States, a combination that has cost millions of lost American manufacturing jobs.
On Wall Street, stocks were mixed. The Dow Jones industrials were down 10 points, while the Nasdaq was up 3 points in morning trading.
Other economic news Thursday offered hope that the lackluster economy may be headed for better days.
New claims for unemployment benefits dropped for the second straight week, declining last week by a seasonally adjusted 13,000 to 421,000, a five-week low, the Labor Department reported.
The more stable, four-week moving average of claims, which smooths out weekly fluctuations, also declined last week by 3,000 to 432,000, another encouraging sign.
Although the claims figures are still running above 400,000 - a level associated with a weak job market- the decline in claims raises hope that the pace of layoffs may be stabilizing.
And, a key measure of future economic activity rose in May, bolstering hopes that the economy may be headed for a rebound.
The Conference Board reported that its Composite Index of Leading Economic Indicators jumped 1.0 percent in May, after a tiny 0.1 percent rise in April. The index serves as an indicator of where the economy is headed in the next three to six months.
Even with the hopeful economic news, the Federal Reserve is expected to cut a key interest rate now at a 41-year low of 1.25 percent when it meets next week to help energize the economy.
The current account deficit is considered the best measurement of a country's international economic standing because it measures not just the goods and services reflected in the government's monthly trade reports, but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments.
In the January-March quarter of this year, the deficit in goods widened to $136 billion in the first quarter - up from the deficit of $132.2 billion in the fourth quarter - as imports of goods outpaced exports.
Petroleum imports accounted for three-quarters of the increase in goods imports in the first quarter, which rose to $309.2 billion. The rise in petroleum imports reflected an increase in price, a government analyst said.
In the services category, which measures things such as airline travel, the United States is running a surplus. The surplus, however, narrowed to $14.4 billion in the first quarter, down from $16.1 billion in the previous quarter.
The government said large declines in travel and passenger fares, reflecting concerns about the war in Iraq and the highly contagious SARS virus, contributed to the narrowing of the United States surplus in services.
The U.S. surplus on investment earnings decreased to $2.6 billion in the first quarter, compared with $3 billion in the fourth quarter.
The category of unilateral transfer, which includes payments that the United States makes in foreign aid to other countries, widened to $17.1 billion in the first quarter, up from $15.4 billion in the fourth quarter.