U.S. Current-Account Deficit Narrows to $208.7 Bln (Update2)
bloomberg.com
June 16 (Bloomberg) -- The U.S. current-account deficit shrank more than forecast in the first quarter from a record in the previous three months as the trade balance improved and Americans earned more on their overseas investments.
The deficit, the broadest measure of trade because it includes transfer payments and investment income, declined to $208.7 billion from a revised $223.1 billion the previous three months, the Commerce Department said today in Washington. The gap narrowed to 6.4 percent of the economy from 7 percent in the fourth quarter.
Even with the improvement, the deficit was the second- largest on record. Higher interest rates and improving growth abroad increases the chance that investors will diversify their holdings away from the U.S. to other countries. The U.S. needs to attract about $2.3 billion a day to fund the gap, and any shortfall would undermine the value of the dollar.
``I don't think the current-account deficit will come down dramatically from here; if anything it will trend up a little bit,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina. ``The trade deficit is going to get worse, at least in the near term'' as the cost of oil imports rises, he said.
Economists forecast a first-quarter deficit of $222 billion, according to the median of 46 estimates in a Bloomberg News survey, from an initially reported $224.9 billion shortfall the previous quarter.
The dollar rose against the yen to 114.94 at 8:44 a.m. in New York from 114.75 late yesterday, and was little changed against the euro at $1.2642.
Deficit-to-GDP
Even taking into account a growing economy, the deficit remains daunting. The gap equaled 6.3 percent of gross domestic product in 2005.
The deficit in trade, which accounted for nine-tenths of the total current-account imbalance, narrowed to $190.7 billion last quarter from $194.8 billion as exports benefited from improving economies overseas. Americans' appetite for goods made in China and other Asian countries also held up.
The figures so far this quarter suggest the trade balance will not continue to improve. The deficit widened in April to $63.4 billion from $61.9 billion the previous month, the Commerce Department reported earlier this month. The cost of imported oil rose for the month, as did purchases of industrial machinery and automobiles. At the same time, the deficit with China widened.
U.S. investors received more income on their holdings of overseas investments than foreigners received here. That helped to narrow the overall current-account deficit.
Income on Overseas Investments
Income on overseas assets held by U.S. investors rose to $140.8 billion from $131.2 billion. Foreign earnings on U.S. assets, including wages and other compensation, rose to $138.9 billion in the first quarter from $133.4 billion in the previous three months. That left a $1.9 billion surplus on income payments, compared with a $2.2 billion deficit in the fourth quarter.
U.S. government payments to foreigners and other private transfers abroad registered a $19.9 billion deficit, smaller than the $26.2 billion deficit in the prior quarter.
Central bankers and finance ministers throughout the world have pointed to the growing trade imbalances as a threat to the global economy. All nations need to take steps to correct domestic imbalances in order for the global picture to improve, they said.
Fed's Bernanke
``Along with greater national saving in the United States, increased domestic demand in countries with current account surpluses and a greater flexibility of exchange rates more broadly would help to reduce those imbalances over time,'' Federal Reserve Chairman Ben S. Bernanke said during a panel discussion on June 5.
Those remarks were echoed by Pedro Solbes, Spain's finance minister, four days later.
``It is apparent that fiscal indiscipline in some developed countries, particularly the U.S., is unduly eroding its national saving rate and therefore contributing to its current account deficit,'' Solbes said. ``All those involved must make an effort -- the U.S. in that it has to reduce its fiscal deficit, Europe must work more on its structural reforms to generate more growth. Obviously Asian countries share part of the effort in some cases by effecting the exchange rate.''
A report yesterday showed international investors may be turning reticent to continued purchases of U.S. assets. Net holdings of Treasury notes, corporate bonds, stocks and other financial assets increased by $46.7 billion in April, less than the previous month's $70.4 billion and the lowest since March last year, the Treasury Department said in Washington.
Dollar Flows
As other countries raise rates ``the interest-rate differential will narrow and returns on U.S. assets won't look as good,'' said Wachovia's Bryson. ``The dollar overtime will continue to trend lower.''
The dollar dropped 3.6 percent in the first five months of the year against a trade-weighted basket of currencies from its biggest trading partners, according to Fed data. It's recouped some of those losses this month as falling stock markets throughout the world boosted demand for the relative safety of U.S. Treasuries, economists said. |
