Bloomberg News

U.S. Current-Account Gap Unexpectedly Narrowed in Second Quarter

September 15, 2011

Sept. 15 (Bloomberg) -- The current-account deficit in the U.S. unexpectedly narrowed in the second quarter, reflecting an increase in exports and a record income surplus.

The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 1.3 percent to $118 billion from a revised $119.6 billion shortfall in the prior quarter, a Commerce Department report showed today in Washington. The median forecast of economists in a Bloomberg News survey called for the deficit to widen to $122.4 billion.

The 4.7 percent drop in the dollar in the past year has resulted in American-made goods becoming cheaper for overseas buyers, helping to fuel exports. At the same time, the balance of payments deficit is a reminder the world’s largest economy will remain dependent on foreign investors for funding.

“With the rise in exports, our trade position has improved, which is helping to lower the current-account gap,” Omair Sharif, an economist at RBS Securities LLC in Stamford, Connecticut, said before the report. “There’s no doubt we’ll continue to need financing from overseas, and we’ll continue to get that financing. U.S. assets are still one of the safest in the world.”

Economist Estimates

Estimates of 34 economists in a Bloomberg News survey ranged from deficits of $135.5 billion to $117.0 billion. The first- quarter shortfall was revised from a previously reported $119.3 billion.

The gap represented 3.1 percent of gross domestic product last quarter, compared with 3.2 percent in the first quarter.

The trade deficit, which accounted for most of the current- account gap, widened to $145 billion in the April-to-June period from $140 billion in the prior three months.

Because the figures aren’t adjusted for inflation, an easing in oil costs may prompt the shortfall to shrink this quarter.

Crude oil futures on the New York Mercantile Exchange averaged $102.3 per barrel in the April through June period, and have slid to $90.90 so far in the third quarter. The average for the first three months of 2011 was $94.60 per barrel.

The trade deficit may improve this quarter, recent figures indicate. The gap in July shrank 13.1 percent, the most since February 2009, according to government data released Sept. 8. Exports climbed to a record in July, while imports declined.

U.S. income on overseas assets exceeded payments on U.S. assets to foreigners, including wages and compensation, today’s report showed.

Income Payments

That left a $61.1 billion surplus on income, the largest on record, up from $52.7 billion in the prior quarter. U.S. investments overseas generally yield more than the Treasury securities that foreign investors prefer to buy, helping maintain the income surplus.

Payments by the U.S. government to foreigners and other private transfers abroad exceeded official inflows from overseas by $34.2 billion from April through June, compared with $32.3 billion in the previous quarter.

The U.S. fiscal policy plans so far will do little to reduce the country’s current account deficit, the International Monetary Fund said yesterday, based on an analysis of fiscal tightening over the past 30 years. Congress, after agreeing to cut $917 billion in spending over a decade, has yet to craft an additional $1.5 trillion plan to trim its national debt.

“The relative lack of permanent consolidation measures in the U.S. suggests that fiscal policy will contribute little to lessening the U.S. external deficit,” the IMF said in its report.

--Editor: Kevin Costelloe

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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