Current account deficit widens $61.3 billion in 3rd quarter is most ever

December 10, 1998|By BLOOMBERG NEWS

WASHINGTON -- The U.S. trade deficit in goods, services and investor income widened to a record $61.3 billion in the third quarter, the Commerce Department reported yesterday.

Sluggish global economies have dampened demand for U.S.-made goods as Asian companies, such as Thai Airways International, trim airplane orders from Boeing Co., the biggest U.S. exporter. Also, U.S. investors saw the values of their international stock and bond investments decline.

That one-two punch produced the largest current account deficit ever.

The current account balance is the broadest measure of U.S. international transactions and covers investments and financial business between governments, in addition to ordinary trade.

In the second quarter, the current account shortfall was $56.7 billion, revised from an initial $56.5 billion. While a larger deficit could result in lost investor confidence, which would put pressure on the U.S. dollar, that hasn't happened.

"One of the key reasons is what's going on globally -- there's a flight to U.S. assets," said Greg Jones, chief economist at Briefing.com in Jackson, Wyo. "Our ability to pay our debts isn't in question."

And, "the U.S. is currently serving as an engine of growth for the world by buying more goods than it's selling," said Chris Varvares, economist at Macroeconomic Advisers in St. Louis.

With the record shortfall, the current account deficit amounts to about 2.9 percent of U.S. gross domestic product, the total of all goods and services produced in the country. That compares with a current account surplus in the United Kingdom of about 0.3 percent of GDP, and deficits in Brazil of about 4.4 percent and in Mexico of about 3.8 percent.

When overseas economies start to strengthen, the U.S. trade deficit is expected to narrow. Investors are not troubled by the wider trade gap because it is largely a response to weak global economies and a strong domestic economy, Jones said.

The U.S. deficit on investment income increased to $5.5 billion in the third quarter from $3.4 billion in the second quarter. Income receipts on U.S. assets abroad fell to $60.4 billion from $61.9 billion, with a drop in direct investment accounting for most of the decline.

While foreign investors sold more stocks and Treasury securities in the third quarter than they bought, "U.S. banks received a large amount of funds from foreigners as a result of uncertainty in financial markets," the Commerce Department's Bureau of Economic Analysis said.

U.S. liabilities to overseas investors reported by domestic banks, excluding Treasury securities, increased $82.7 billion in the third quarter after a $37.7 billion second-quarter gain.

"If it weren't the case that they're willingly investing in the U.S., we would have downward pressure" on the dollar, Varvares said.

In the third quarter as global financial conditions dimmed, there was "a shift to liquidity" into the United States, said Kenneth Mayland, chief economist at KeyCorp in Cleveland. "At the end of the third quarter, pure and simple that was the name of the game."

The U.S. trade deficit in goods and services is on its way to being the largest ever. At its current pace through September, the trade deficit for all of this year is on track to reach $164.1 billion. That would exceed the record shortfall of $153.3 billion in 1987.

The merchandise trade deficit keeps on growing, as global turmoil has hurt demand for U.S.-made products. The deficit in goods alone for the third quarter was $64.36 billion, little changed from the $64.44 billion deficit in the second quarter.

Pub Date: 12/10/98

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