U.S. trade gap reaches a record high in 3rd quarter
U.S. trade gap reaches a record high in 3rd quarter
Widened imbalance reflects oil imports
Copyright by Bloomberg News and The Associated Press
Published: 2006-12-18 17:10:48
WASHINGTON: The U.S. current account deficit widened to a record $225.6 billion in the third quarter, the government reported Monday, in line with expectations, as the trade gap grew and the country paid more interest to overseas investors.
The shortfall in the current account, the broadest measure of trade because it includes transfer payments and investment income, followed a revised $217.1 billion gap in the second quarter, the Commerce Department said.
The trade deficit ballooned during the July-to-September quarter, when oil prices surged and imports from China flooded into the United States. Stronger economies abroad and a weakening dollar suggest exports will strengthen and the trade balance will improve in coming months, lessening the risk that foreign investors turn their backs on U.S. assets.
"The important thing, though, is that the deficit isn't growing as fast as it was before, which is exactly what you want to see," said Chris Low, chief economist at FTN Financial in New York. "Sudden shifts would scare financial markets."
The figure represents the amount of money that must be borrowed from foreigners to make up the difference between what America imports and what it sells overseas. The U.S. needs to attract about $2.5 billion a day to finance the gap, and any shortfall would potentially undermine the value of the dollar.
The gap amounted to 6.8 percent of the economy, the second-highest level ever, compared with 6.6 percent in the second quarter. The deficit reached a record 7 percent of gross domestic product in the fourth quarter of 2005.
"Continued large U.S. deficits will keep talk of potential instability in U.S. asset markets in play," said Michael Englund, chief economist at Action Economics. A "likely significant moderation" in the trade gap in the fourth quarter will help assuage those concerns, Englund said.
The dollar has fallen 1.4 percent this quarter against a basket of currencies, and dropped 4.6 percent so far this year.
Economists had forecast a deficit of $225 billion for the third quarter, according to the median estimate of 39 economists in a Bloomberg News survey. The current account deficit is expected to set a record for the full year, far surpassing last year's $791.5 billion.
The deficit in trade, which accounts for about 90 percent of the total current account imbalance, widened to $200.3 billion last quarter from $193.1 billion in the second quarter.
U.S. investors, meanwhile, received less income on their holdings of overseas investments than foreigners received in the United States. That helped to widen the overall current account deficit.
Income on overseas assets held by U.S. investors rose to $160.8 billion from $156 billion. Foreign earnings on U.S. assets, including wages and other compensation, rose to $164.6 billion in the third quarter from $158.2 billion in the previous three months. That left $3.8 billion deficit on income payments, the largest ever, compared with a $2.2 billion shortfall in the second quarter.
A widening deficit with China is aggravating trade tensions between the two countries. Some U.S. lawmakers have called for higher tariffs and other measures against China for currency policies that they say unfairly bolster Chinese exports.
Separately, the European Union's statistics office said Monday that the European trade deficit with China surged 19 percent in the nine months through September.
Europe's trade deficit with China grew to €63.4 billion, or $83 billion, in the period. China is poised to overtake the United States this year as the second- biggest source of imports to the euro area, behind Britain.
Widened imbalance reflects oil imports
Copyright by Bloomberg News and The Associated Press
Published: 2006-12-18 17:10:48
WASHINGTON: The U.S. current account deficit widened to a record $225.6 billion in the third quarter, the government reported Monday, in line with expectations, as the trade gap grew and the country paid more interest to overseas investors.
The shortfall in the current account, the broadest measure of trade because it includes transfer payments and investment income, followed a revised $217.1 billion gap in the second quarter, the Commerce Department said.
The trade deficit ballooned during the July-to-September quarter, when oil prices surged and imports from China flooded into the United States. Stronger economies abroad and a weakening dollar suggest exports will strengthen and the trade balance will improve in coming months, lessening the risk that foreign investors turn their backs on U.S. assets.
"The important thing, though, is that the deficit isn't growing as fast as it was before, which is exactly what you want to see," said Chris Low, chief economist at FTN Financial in New York. "Sudden shifts would scare financial markets."
The figure represents the amount of money that must be borrowed from foreigners to make up the difference between what America imports and what it sells overseas. The U.S. needs to attract about $2.5 billion a day to finance the gap, and any shortfall would potentially undermine the value of the dollar.
The gap amounted to 6.8 percent of the economy, the second-highest level ever, compared with 6.6 percent in the second quarter. The deficit reached a record 7 percent of gross domestic product in the fourth quarter of 2005.
"Continued large U.S. deficits will keep talk of potential instability in U.S. asset markets in play," said Michael Englund, chief economist at Action Economics. A "likely significant moderation" in the trade gap in the fourth quarter will help assuage those concerns, Englund said.
The dollar has fallen 1.4 percent this quarter against a basket of currencies, and dropped 4.6 percent so far this year.
Economists had forecast a deficit of $225 billion for the third quarter, according to the median estimate of 39 economists in a Bloomberg News survey. The current account deficit is expected to set a record for the full year, far surpassing last year's $791.5 billion.
The deficit in trade, which accounts for about 90 percent of the total current account imbalance, widened to $200.3 billion last quarter from $193.1 billion in the second quarter.
U.S. investors, meanwhile, received less income on their holdings of overseas investments than foreigners received in the United States. That helped to widen the overall current account deficit.
Income on overseas assets held by U.S. investors rose to $160.8 billion from $156 billion. Foreign earnings on U.S. assets, including wages and other compensation, rose to $164.6 billion in the third quarter from $158.2 billion in the previous three months. That left $3.8 billion deficit on income payments, the largest ever, compared with a $2.2 billion shortfall in the second quarter.
A widening deficit with China is aggravating trade tensions between the two countries. Some U.S. lawmakers have called for higher tariffs and other measures against China for currency policies that they say unfairly bolster Chinese exports.
Separately, the European Union's statistics office said Monday that the European trade deficit with China surged 19 percent in the nine months through September.
Europe's trade deficit with China grew to €63.4 billion, or $83 billion, in the period. China is poised to overtake the United States this year as the second- biggest source of imports to the euro area, behind Britain.
posted by Carlos T Mock at 6:42 AM
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