U.S. current account gap is record

Broadest trade measure tops 2nd-quarter forecast, swells to $166.2 billion

September 15, 2004|By BLOOMBERG NEWS

WASHINGTON - The U.S. current account deficit grew to a record $166.2 billion in the second quarter as higher oil prices contributed to a wider trade gap, the government reported yesterday.

The deficit, the broadest measure of trade because it includes investments, was larger than forecast and follows a $147.2 billion gap in the previous three months, the Commerce Department said. The shortfall equals 5.7 percent of the nation's $11.6 trillion economy, up from 5.1 percent in the first quarter.

The trade deficit in goods and services swelled to a record $55 billion in June as imports of crude oil and other industrial supplies surged, according to an earlier government report.

At the current pace, the United States needs to attract about $1.8 billion a day to fund the deficit and keep the value of the dollar steady. A drop in foreign funding would cause the dollar to decline and interest rates to rise, economists said.

"The huge deficit, combined with the massive capital account inflow from foreign central banks, suggests that a sharp downward adjustment in the dollar remains a risk," said Michael Englund, chief economist at Action Economics LLC in Boulder, Colo. "For now, though, foreigners remain content to plug the record gap via the capital account."

Economists, on average, forecast a second-quarter deficit of $158.3 billion. The deficit for the first quarter was previously reported at $144.9 billion.

Against the yen, the dollar fell to 109.57 from 110.12 yen in New York Monday. The dollar weakened slightly to $1.2258 per euro, from $1.2257 Monday.

The deficit reflected a wider trade shortfall in goods and services, and a decrease in net income receipts.

The shortfall in the nation's balance of trade accounts for about 90 percent of the current account shortfall.

U.S. exports have slowed because of sluggish growth in the rest of the world. Last week, Japan cut its estimate for second-quarter economic growth to a 1.3 percent annual pace, the slowest in more than a year. The economy in the euro zone grew at a 0.5 percent pace. The U.S. economy, the world's largest, grew at a 2.8 percent rate.

The European Union's goal of achieving economic growth equal to that of the United States by the end of the decade is unrealistic, said Gernot Nerg, an economist at Germany's Ifo Institute for Economic Research. Europe's economy has trailed that of the United States in 11 of the past 12 years.

A surge in income paid to foreigners on their U.S. assets helped to widen the overall deficit.

Foreign earnings on U.S. assets, including wages and other compensation, rose to $84.2 billion in the second quarter from $71.4 billion in the previous three months. Income on overseas assets held by U.S. investors rose to $86.9 billion from $83.5 billion. That left a $2.6 billion surplus on income payments, compared with a $12.2 billion surplus in the first quarter.

Net government payments to foreigners and other private transfers abroad registered a $18.5 billion deficit, compared with a $20.7 billion deficit in the prior quarter.

The value of foreign-owned U.S. assets, including purchases of stocks and bonds and direct investment in businesses and real estate, rose by $265.2 billion in the second quarter, compared with a $445.3 billion increase in the previous three months.

U.S.-owned assets abroad fell $118.5 billion after a $306.7 billion decrease in the first quarter.

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