Signs of Growth Spur Inflation Fear; Trade Deficit, Retail Sales Indicate Economic Vigor, But Markets See Down Side
WASHINGTON -- A trade deficit wider than expected and strong retail sales signaled that the economy remains on a solid upward trajectory but prompted concerns in the markets that inflation is heating up.</br></br>The trade gap widened 3.6% to a record $48.3 billion in April, from March's $46.6 billion, according to the Commerce Department. The deficit reflected a decline in exports of $1.5 billion, while imports remained largely flat. The drop covered a broad range of exports, but a number of analysts dismissed it as a statistical aberration.</br></br>"Over the last year, exports were up 10%; over the last three months, exports rose almost 20% at an annual rate," says John Ryding, chief U.S. economist for the investment bank Bear Stearns. "The trend is unambiguously higher." The National Association of Manufacturers also dismissed the decline as "a one-time correction."</br></br>The widening trade deficit could put downward pressure on the dollar as investors lose confidence in the ability of the U.S. to repay its debts, boosting the prices of imports higher than they otherwise would be. But the deficit can also be a signal of economic strength. That is because the U.S. is growing more rapidly than other industrialized nations and absorbing more imports than its trading partners.</br></br>Retail sales, which grew at a 1.2% pace in May, compared with a 0.6% drop in April, was another signal of a strengthening U.S. economy. May's growth drew on a healthier job market and aggressive discounting at car dealerships looking to counter higher gasoline prices. Light- vehicle sales among the Big Three U.S. auto makers rose 14.6% in May compared with the month before, the National Automobile Dealers Association said.