Trade Deficit, Producer Prices Soar

www.washingtonpost.com By John M. Berry Washington Post Staff Writer Thursday, February 20, 2003; 1:23 PM

The nation's trade deficit soared to a record $44.2 billion in December and to $435.2 billion for all of 2002, putting a significant damper on U.S. economic growth last year, the Commerce Department reported today.

The deficit in trade in goods alone was $484 billion, more than a fifth of which was in trade with China. That country sold $103 billion more goods and services to the United States than it bought here.

The worst deterioration in both December and the entire year came on the goods side of the ledger. The deficit in goods trade widened to $484.4 billion from $427.2 billion in 2001 while the perennial surplus in services trade shrank to $49.1 billion from $68.9 billion, the department said.

"In terms of trade, 2002 was a real downer," said Jerry Jasinowski, president of the National Association of Manufacturers. "Manufacturing exports declined $34.2 billion, or 5.7 percent, to $563 billion."

The manufacturing sector of the economy, hard hit by the recession of 2001, has barely begun to recover and has lost jobs for 30 months in a row, Jasinowski said. "The absence of an export recovery is a critical element of this weakness," he said.

Meanwhile, the Labor Department said its index of producer prices for finished goods shot up by 1.6 percent last month, the largest monthly increase in a dozen years. The index measures changes in the prices charged by producers when they first sell a completed item.

The increases in prices were much larger and much more widespread than analysts had expected. Surging crude oil costs did the most damage.

Oil prices have shot up because of fears of world supply disruptions if the United States wages a war against Iraq and because political problems in Venezuela have severely disrupted production in that country, a significant supplier of oil to the United States.

Gasoline prices rose 13.7 percent and home heating oil prices 19.7 percent. Food prices increased 1.6 percent, primarily because of an 18.2 percent jump in fresh vegetable prices. And the prices automakers charged dealers for new cars rose 3.5 percent because the manufacturers cut back on the sales incentives they had been offering. Prices for light trucks, including sport utility vehicles, rose 4.1 percent.

Even with last month's spike in producer prices, the increase in the PPI over the past 12 months was relatively modest. The overall index was up 2.8 percent from January 2002 with most of that due to a 17 percent increase in energy prices. Food prices rose only 0.4 percent over the period and the so-called core portion of the index, which excludes food and energy items, was up only 0.5 percent.