Import drop slims trade gap to relief of White House

There was almost a visible sigh of relief yesterday after the Commerce Department reported that the United States trade deficit for July shrank to its lowest monthly imbalance since December 1984. The White House took credit. The dollar firmed, and the stock and bond markets staged an early morning rally.

Economists had been particularly interested in the July figures, which showed a monthly deficit of $9.5 billion - with most of the improvement coming from a decline in imports.

The White House immediately claimed that the trade numbers for the prior month were an aberration. Last month, the Commerce Department said the June trade deficit had jumped to $12.4 billion (revised to $13.2 billion), a number that immediately lead to criticism of Reagan's economic policies from Democratic presidential candidate Michael Dukakis.

The July reversal, claimed US Trade Representative Clayton Yeutter, ``is the result of sound economic policies here and abroad.''

Economists, however, believe the drop-off in imports may be another clue that the economy is beginning to slow down. Earlier this month, the government reported the unemployment rate had ticked up from 5.2 percent to 5.4 percent. And yesterday the government also reported industrial production rose a modest 0.2 percent for August.

``There is no question we are slowing down,'' says economist Larry Chimerine of the WEFA group in Philadelphia. ``The question is the magnitude of the slowdown.''

The improved trade figures, says economist Jay Goldinger of Capital Insight, a Beverly Hills brokerage house, should take some pressure off the Federal Reserve Board to tighten interest rates. ``The Fed has a lot of breathing room now,'' he says, since the decline in imports indicates that consumers do not have ``an insatiable appetite for imports.''

But economist Mickey Levy of First Fidelity Bancorporation says it is unlikely the Fed will change its policy soon. ``The Fed is in a tough position to have the economy weakening but to still have inflation above the comfort level.''

Economists warn that it is dangerous to read too much into the trade numbers, since they are frequently revised.

The latest numbers, which are now seasonally adjusted, were also issued with a new twist. The Commerce Department included a set of trade numbers, minus the cost of insurance and freight. This new number, plus the old trade numbers - reported here - will be issued until March. Then the government will issue only trade numbers without the cost of freight and insurance. Excluding the cost of freight and insurance would reduce the US trade deficit by $1.5 billion a month.