Bloomberg News

U.S. Current-Account Deficit Narrows to Smallest in Two Years

December 15, 2011

Dec. 15 (Bloomberg) -- The current-account deficit in the U.S. narrowed in the third quarter to $110.3 billion, the smallest since the final three months of 2009, as exports picked up.

The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 12 percent from a revised $124.7 billion shortfall in the prior quarter that was bigger than initially estimated, a Commerce Department report showed today in Washington. The median forecast of economists in a Bloomberg News survey called a $108.5 billion third-quarter deficit.

An improvement in exports to developing markets from companies like Dow Chemical Co. may help cushion the world’s largest economy from a slowdown in Europe. Nonetheless, the overall balance of payments deficit is a reminder of U.S. dependence on foreign investors for funding.

“Narrowing trade deficits are always good news,” Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, said before the report. “It looks like the trade sector will continue adding to growth.”

Estimates of the 33 economists in a Bloomberg survey ranged from deficits of $100 billion to $115 billion. The second-quarter shortfall was revised from a previously reported $118 billion.

The gap represented 2.9 percent of gross domestic product last quarter, compared with 3.3 percent in the second quarter.

The trade deficit, which accounted for most of the current- account gap, narrowed 7.3 percent to $135.6 billion in the quarter, today’s report showed.

Because the figures aren’t adjusted for inflation, an easing in oil costs may help shrink the shortfall further.

Oil Prices

Crude oil futures on the London-based ICE Futures Europe exchange averaged $112 per barrel in the July through September period, down from about $117 for the prior quarter. Brent crude for January settlement declined $2.87, or 2.6 percent, to end the Dec. 14 session at $106.63 a barrel on the exchange.

More recent figures indicate the current-account balance may keep improving. The trade gap shrank to $43.5 billion in October, the smallest deficit of the year, from $44.2 billion in September. Imports fell to the lowest level since April, due almost entirely to a plunge in demand for petroleum.

Manufacturers benefiting from overseas demand include Dow, the largest U.S. chemical maker. The Midland, Michigan-based company is prepared for “slower and jagged” global growth next year, and “exports have actually stood fairly strong for Dow” in Asia, according to William Weideman, chief financial officer.

‘Slow Growth’

“The U.S. and western Europe will continue to see slow growth for the next several quarters,” Weideman said in a Dec. 6 conference call with investors. “This will be offset by ongoing resilience in the emerging geographies.”

U.S. income on overseas assets fell by $2.8 billion to $188.4 billion in the third quarter, today’s report showed. Foreign earnings on U.S. assets, including wages and compensation, decreased by $4.2 billion to $130.1 billion.

That left a $58.3 billion surplus on income payments, up from $56.9 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 $33 billion last quarter, compared with $35.4 billion in the previous period.

Treasuries are rallying as Europe’s sovereign debt crisis has elevated the stress in the global financial system, bolstering demand for the safest assets. Yields on 10-year notes fell late yesterday to the lowest since late November amid signs European leaders are struggling to bring an end to the turmoil.

--Editor: Vince Golle

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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