Figures hint at US recovery slowing: Trade improves but confidence low

Another mixed batch of US economic indicators was published yesterday, suggesting an improved trade picture, stagnant industrial output and sagging consumer confidence.

All three measures underlined that the slow recovery under way in America since 1991 is, if anything, losing strength once more.

The May trade figures, reported by the Commerce Department, were ostensibly heartening enough: a decline in the trade deficit to dollars 8.4bn, 18 per cent down on the dollars 10.2bn shortfall in April, and helped by an especially steep fall in the chronic and contentious US deficit with Japan, which fell to dollars 3.75bn from dollars 5.5bn - the biggest monthly drop since December 1986, when there was a dollars 2.8bn drop.

The Clinton administration last week reached agreement with Japan on a new trade framework that it hopes will open Japanese markets to more US goods and reduce the trade imbalance between the two countries.

The trade surplus with Western Europe fell to dollars 332m from dollars 450m in April while the deficit with Canada, the US's largest single trading partner, decreased to dollars 828m from dollars 868m.

However, the improvement was above all due to a contraction in imports of nearly 3 per cent in May, not least of Japanese cars. These figures suggested that dealers and manufacturers had been caught off guard by the stalling economy, which had left inventories at higher levels than expected.

The latest industrial production returns bore this suggestion out. Output last month dropped by 0.2 per cent, after a revised unchanged performance in May, according to the Federal Reserve.

The fall was the first recorded since last September and meant that during the second quarter of this year production grew at an annual rate of just 1.9 per cent, against 5.5 per cent in the first quarter.

Simultaneously, the closely watched consumer confidence index published by the University of Michigan fell more than four points in July, to 76.9 from June's reading of 81.5.

Analysts expected no immediate improvement, at least until business and consumers see the final budget package that emerges from the negotiations between the Senate and the House of Representatives.

The administration has now revised its prediction of GDP growth for 1993 downwards, to 2.5 per cent from the previous 3 per cent. The bright spot is that inflation is virtually non-existent, while long-term bond rates are at 30-year lows.