Trade Deficit at Record High but Stocks Soar

WASHINGTON —  The U.S. trade deficit widened to a record $16.5 billion in July because of a surge in oil imports, the Commerce Department reported Friday, but the value of the dollar increased and the stock market soared despite the apparently disappointing figures.

Political reaction, however, was intensely negative.

The July deficit increase was not as bad as it seemed on the surface, analysts said in explaining investors’ seemingly paradoxical reaction to the trade figures.

Improvement Cited

“The irony is that the higher trade deficit masks the fact that the trend is actually continuing to improve, even if not as quickly as it should,” said Michael Penzer, a senior economist at Bank of America in San Francisco.

Experts noted that the volume of exports--adjusted for normal seasonal variations--continued to rise strongly in July even though the value of exports stagnated at $21 billion after a $21.1-billion level in June.

Meanwhile, the rise in the value of imports, economists said, is caused partly by higher prices on foreign goods due to the fall in the dollar, rather than to just an increase in shipments.

At the same time, the sharp import surge may in part be attributable to a rush by wholesale buyers to stock up on foreign goods because of fear that further declines in the dollar or proposed protectionist legislation in Congress could increase the prices of the goods they import.

Those fears appeared to be realistic as politicians on Capitol Hill pounced on the latest figures as evidence that the Reagan Administration’s policies have failed to make a dent in the trade deficit and vowed to produce a tough trade bill this year.

“Terrible is the only word for the July trade deficit,” said Sen. John C. Danforth (R-Mo.), who is expected to play a major role in fashioning a compromise between House and Senate trade measures. “The real message of July’s report is that it will make absolute the determination of Congress to send the President a major trade bill.”

Rep. Tony Coelho of Merced, the third-ranking House Democrat, accused President Reagan of failing to “stand up for American workers with the same enthusiasm he gives the contras “ and argued that the nation is “losing jobs, plants and capital investment because of (White House) satisfaction with the status quo.”

On Political Defensive

Reagan Administration officials, who had hoped that the decline in the dollar that began 2 1/2 years ago would yield more visible improvement in the trade figures by now, acknowledged that the latest report puts them on the political defensive.

“Today’s figures should not be an excuse for special interest protectionism,” said Clayton K. Yeutter, the Administration’s chief trade negotiator. “Despite our disappointment, we must keep these figures in perspective. The U.S. economy would not be able to absorb such a high level of imports if it were not expanding at a healthy pace.”

The rise in July’s trade deficit followed an unexpectedly sharp increase in June to $15.7 billion from the $14 billion deficit in May. The new figures brought the deficit to an annual rate of $168.7 billion for the first seven months of 1987, compared with the previous record level of $156.2 billion last year.

Record Deficit ‘Inevitable’

“A new record trade deficit is all but inevitable this year,” Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) said. “The July trade figures expose for all the world to see the glaring failure of this country’s trade policy.”

But, on Wall Street, several factors took the sting out of the record trade deficit. July deficits are traditionally large because of an export slump as many U.S. factories shut down for repairs or slow production because of summer vacations. Last July, for example, the trade deficit soared by $2.8 billion over June, but then began an uneven decline.

On the other side of the ledger, higher imports were largely the result of the fact that imports of oil and gas increased to $4.7 billion from $4.1 billion. That was attributed to tensions in the Persian Gulf, which pushed up prices and caused importers to stock up on energy products.

Many traders may also have been worried that the deficit would be much worse and were relieved when it came in not much higher than the $16 billion that many had forecast.

Export Resurgence

Moreover, hopes for better figures next month were raised by expectations of the normal seasonal export resurgence in August and Thursday’s report from Tokyo that its trade surplus with the United States fell by $700 million in August.

“We are probably going to get a very nice improvement for August,” said Bruce Steinberg, an economist at Merrill Lynch in New York. “That is undoubtedly being factored into the market already.”

Also, inflation fears, which tend to drive down the dollar, were quelled when the Labor Department reported that wholesale prices were unchanged in August after adjustment for seasonal factors.