The winds from Asia may finally be blowing across the U.S. economy, just as Federal Reserve Chairman Alan Greenspan predicted.
The U.S. current account deficit, the broadest measure of foreign trade, unexpectedly burgeoned to $45.6 billion in the fourth quarter and to $166.4 billion for 1997, the second biggest gap on record, according to the Labor Department.
The deficit is expected to widen considerably as this year unfolds and to gradually slow the economy's pace.
Meanwhile, according to separate reports, import prices dropped 0.8% during February and 6.1% from a year earlier, and wholesale price deflation continued, as the producer price index slipped 0.1% in February and 1.6% from a year earlier.
Many economists anticipate a surge of Asian imports at discount prices because of the surprisingly deep currency devaluations that have accompanied the region's financial crisis. Similarly, U.S. exports to the region are likely to drop.
That could put corporate profits under pressure in this country and hurt stock prices, and a downturn in the stock market would likely cause serious damage to consumer confidence and hurt the economy.
So far, however, the huge forward momentum of the nation's economy has continued without interruption. That has led some to wonder whether the likely effects from Asia have been overstated, or simply delayed.
"The economy continues to rock and roll. It hasn't missed a beat," said Edward Yardeni, chief economist at Deutsche Morgan Grenfell. Still, he forecast a slower business environment in the second half.
Mr. Greenspan recently told Congress that he expects the economic "winds from Asia" to pick up but was uncertain of the timing. Meanwhile, he suggested that the Fed's interest rate policy remains on hold.
"The chairman never says what he expects interest rates to do. Our best guess is that the Asian situation will cause the Fed to cut rates a little later this year to keep the ball rolling," said Nicholas S. Perna, chief economist at Fleet Financial Group.
"What lies ahead may be very like the aftermath of the Mexican devaluation at the end of 1994, at least the initial aftermath," said economist and money manager A. Gary Shilling, who is also president of A. Gary Shilling & Co., Springfield, N.J.
"That devaluation, too, went further than officials thought possible, over 60% so far, and the first crack revealed many hidden problems," he said.
A huge and rapid $20 billion international bailout, financed largely by the United States, did not head off severe repercussions. The most obvious impact from the U.S. standpoint was the rapid collapse of Mexican imports from this country.
The growth of Mexican exports was far more gradual, which Mr. Shilling said was not surprising, since "it takes time to crank up export production. Also, until the initial shock of the peso crisis subsided, many producers, especially smaller ones, lacked the dollars needed to import raw materials.
"The same thing is happening in developing Asian nations and is still happening, to a degree, in Mexico," he said. "Imports have dropped like rocks, and some exporters can't get financing for raw material and component imports.
"They can't cut and sew the garments if they can't pay for and receive the cloth," he said. "But those are short-term problems. Governments are scrambling for trade financing to ensure exports."