Americans' demand for imported goods -- everything from cars and clothing to those hot toys for Christmas -- climbed to an all-time high in October, in the process creating a record U.S. trade deficit with China.
In a more hopeful sign for battered manufacturers, American exports also rose, to the highest level in 2 1/2 years.
The overall trade deficit hit $41.8 billion, a 1 percent increase from September's imbalance of $41.3 billion, the Commerce Department reported Friday.
The deficit was the biggest in five months and kept the country on track for a record shortfall this year of around $490 billion. That would surpass last year's $418 billion record gap between what America sells abroad and what it imports.
Americans' seemingly insatiable appetite for foreign goods continued unabated, pushing October's total imports to a record $129.7 billion, an increase of 2.1 percent over September.
Demand for foreign cars and auto parts rose by $1 billion to a new high of $18.4 billion while retailers stocking their shelves with Hokey Pokey Elmo and other hot Christmas toys pushed demand for imported toys and games up $36 million to $2 billion. Three out of four toys sold in the United States are foreign-made, about two-thirds of those imports coming from China.
Democrats campaigning to replace President Bush have seized on the soaring trade deficits and the 2.8 million jobs lost in manufacturing over the last three years as evidence the administration's economic policies are failing.
Treasury Secretary John Snow, promoting those policies Friday with a shopping trip to New York City, told reporters at a Toys "R" Us store in Times Square that the administration was trying to deal with the trade deficit by encouraging Europe and Japan to promote faster economic growth in those countries.
"We need to embrace trade," Snow said. "Trade is good for America. Trade is good for our consumers. It's good for our producers and manufacturers, and it's good for jobs."
The administration could take heart that exports were up as well in October, rising by 2.6 percent to $87.96 billion. It was the fifth increase in the past six months and pushed exports to the highest level since March 2001.
A wide range of American exporters participated in the gains, with farm exports climbing to the highest level in more than seven years, foreign sales of American cars hitting the highest level since March 2000 and exports of capital goods including aircraft at the highest level in 27 months.
"After three lean years, trade conditions are finally beginning to improve thanks to a realigning dollar and improving demand abroad," said Jerry Jasinowski, president of the National Association of Manufacturers.
The dollar has fallen in value by about 14 percent against a marketbasket of major currencies since the beginning of the year. It has not budged against China, however, because that country has pegged the value of its currency to the U.S. dollar, which American manufacturers contend gives Chinese products a price advantage of as much as 40 percent over U.S. products.
While the Bush administration, heeding their complaints, is pressing China to float its currency to float freely against the dollar, Federal Reserve Chairman Alan Greenspan said Thursday he doubted that this would boost U.S. employment.
In other economic news, the Labor Department reported Friday that wholesale prices fell by 0.3 percent in November, the first decline since May, reflecting falling costs for gasoline, beef and cars. The department's core Producer Price Index, excluding volatile food and energy costs, was down 0.1 percent, indicating that price pressures are nonexistent despite a rebound in economic growth in recent months.
The October trade report showed that U.S. exports to China hit a record of $2.87 billion but still were swamped by Chinese imports into this country, which climbed to a record $16.43 billion. That pushed America's trade deficit with China to $13.57 billion, the largest monthly imbalance ever recorded with any country.
America's deficit with Japan was up an even sharper, 25.4 percent in October to $6.44 billion, but remained far below the deficit with China.
America's deficit also was up with Mexico, rising by 7.8 percent to $3.5 billion, as imports from Mexico hit a record high. Critics say the surging trade deficit with Mexico is evidence of the failure of the North American Free Trade Agreement, which links the United States, Canada and Mexico.
Rejecting that argument, the administration has been dealing this week in Washington with trade negotiators from five Central American countries to seek agreement this month on a Central American Free Trade Agreement.