Current account deficit widens to $42.156 billion U.S. economic growth is being blunted by Asian crisis


December 11, 1997|By BLOOMBERG NEWS

WASHINGTON -- The broadest measure of U.S. trade took a turn for the worse in the third quarter as Asia's economic crisis started to blunt U.S. growth and contributed to weaker sales of Treasury securities to Japan, government figures yesterday showed.

The current account deficit, which measures trade in goods, services and investments, widened to $42.156 billion in the third quarter, the Commerce Department said. In the second quarter, the current account deficit totaled $37.852 billion, initially reported as $39.030 billion.

"This is only the beginning," said David Jones, chief economist at Aubrey G. Lanston & Co. in New York. "We're going to see even more pronounced weakness in exports in this quarter and in 1998."

While weaker Asian demand for U.S.-made goods and a surge in cheap imports from that region accounted for a part of the ballooning current-account gap, investment flows to the United States also slowed.

Net foreign purchases of Treasury securities and U.S. currency declined to $43.5 billion in the third quarter from $49.9 billion in the second quarter as Japanese investors -- the largest international holder of U.S. government securities -- bought fewer bills, notes and bonds. The decline would have been even more pronounced if purchases from Western Europe hadn't risen in the third quarter, the Commerce Department said.

Overall, in the third quarter, the U.S. deficit in merchandise trade rose 9.4 percent from the second quarter to $51.5 billion, while the surplus in services rose 2.0 percent to $21.9 billion. The net deficit in income widened 2.3 percent to $3.3 billion.

The current account deficit also includes an $9.2 billion deficit in net international transfers -- including purchases and redemptions of government and private securities and other assets.

The economic malaise in Asia has contributed to a 15 percent rise in the dollar's value against the Japanese yen in the last six months and big declines for the currencies of Thailand, Indonesia, Malaysia and South Korea. That suggests that Asian businesses will pump up shipments to the U.S. as they struggle to offset weak sales. "You can't ignore it. It leaves the markets unsettled," Jones said.

Also yesterday, Commerce Department figures showed that inventories of goods at the nation's wholesalers unexpectedly piled up in October as businesses coped with sluggish sales. That, too, suggests that "the economy should slow," said Gerald Cohen, senior economist at Merrill Lynch in New York.

Inventories rose 0.6 percent during October to $269.657 billion after rising 1.2 percent in September to a revised $268.112 billion. Analysts expected no change in October inventories.

Wholesale sales were little changed at $213.457 billion in October after increasing 2.4 percent in September to $213.372 billion. Previously, the government said September sales climbed 2.3 percent to $213.093 billion.

The inventory-to-sales ratio was unchanged at 1.26 months in October.

Inventories are a major influence on the ebb and flow of the economy. If businesses are caught with too large a supply of unsold goods, orders to manufacturers will slow, braking factory production and in the worse case, shuttering plants.

Pub Date: 12/11/97

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