Downward spiral for US trade figures

DOUBTS were raised over the fate of US industry yesterday as the country’s trade deficit ballooned to a record level and General Motors was embroiled in an accounting scandal.

Official figures showed that America’s trade balance was $66.1bn (£38bn) in September as Hurricane Katrina depressed exports. The 11.4pc monthly jump was the biggest for more than a year.

The US deficit with China also hit a record £ 11.5bn as the economic superpower’s reliance on the Asian tiger increased. Experts warned that the deficit could hold back the overall economy.

Michael Woolfolk, senior currency strategist for Bank of New York, said: ‘We knew there were going to be some hurricanerelated distortions in the September data. But this really exceeded our worst fears. This was a turn for the worst.’ One reason for the burgeoning deficit is US industry’s failure to compete with overseas rivals. GM saw its shares plunge to a 16-year low after admitting it will have to republish its financial results from 2001 after overstating them by as much as £ 230m. The error occurred because it wrongly accounted for supplier credit agreements.

US financial regulator the Securities and Exchange Commission is already investigating GM over similar concerns. GM boss Rick Wagoner said the effect on subsequent annual results would be immaterial. His comments were not enough to calm analysts at the Banc of America, which raised its two-year bankruptcy risk for GM to 40pc from 30pc.

BoA analyst Ron Tadross said that GM’s tricky situation could get worse, with increasing evidence that ‘hidden liabilities exceed hidden assets’. GM reported a £900m third-quarter loss in the three months to September against a £180m profit a year ago – with sales down 23pc in October. It has also been affected by the cost of paying for employee healthcare, although it has managed to agree a deal to slash the bill by £8.5bn.

The company also faces disrupted production, as workers at its largest parts supplier Delphi could strike.