Weak dollar won't ease trade gap soon
Associated Press
Saturday, November 14, 2009

WASHINGTON --- A weaker dollar might boost the U.S. economy by increasing exports and narrowing the trade gap -- but that won't happen anytime soon.

Instead, the nation's trade deficit rose in September by the largest percentage in a decade as U.S. exports grew for the fifth consecutive month, but imports rose faster, a government report showed Friday. That trend is likely to continue until the middle of next year, economists said.

Rising oil prices and higher purchases of foreign goods by U.S. companies drove imports higher. So did more purchases of foreign parts by U.S. manufacturers, which are ramping up production in the fledgling economic recovery.

Higher exports, spurred by a lower dollar, probably won't reduce the trade gap and boost the U.S. economy until 2011, economists said.

"You tend to see imports surge when production begins to grow," said Julia Coronado, a senior U.S. economist at BNP Paribas. That's overriding the benefit of the weaker dollar on exports, she said.

Imports in September rose 5.8 percent from August, led by a 20 percent jump in oil shipments. That's the biggest rise in imports in 16 years. Exports, meanwhile, increased about 3 percent, reflecting stronger sales of American autos, aircraft and industrial machinery.

The monthly trade deficit jumped 18.2 percent to $36.5 billion, the Commerce Department said, the largest monthly percentage increase since 1999.

The weaker U.S. dollar likely will have a greater effect on U.S. exports by late next year, economists said. When the dollar declines compared with other currencies, it makes U.S. exports cheaper and imports more expensive, narrowing the trade deficit. But the dollar hasn't yet fallen that much. It is down about 12 percent against several major currencies since last spring but is at about the same level it was in summer 2008, he said. The financial crisis that fall drove many international investors to the safety of U.S. Treasury bonds, driving up the dollar's value.

The impact of a cheaper dollar can take as long as a year to kick in, said Paul Dales, a U.S. economist at Capital Economics. Foreign exporters to the U.S. don't immediately adjust prices to take into account changes in exchange rates.

For now, the value of U.S. exports is still about 20 percent below where they were before the financial crisis erupted last year. And Mr. Dales said exports and imports likely will continue rising at about the same pace. If so, U.S. trade wouldn't likely contribute to U.S. economic growth during the early stages of the recovery.

Still, further rises in exports should provide some aid to U.S. manufacturers. But those gains will be offset by a rebound in imports as U.S. demand for foreign goods also picks up, analysts said.

From the Saturday, November 14, 2009 edition of the Augusta Chronicle
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