Current-Account Gap Jumps on Surging Imports

Thursday, 16 Sep 2010 08:42 AM

 

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The current-account deficit in the U.S. widened to $123.3 billion in the second quarter, reflecting a surge in imports.

The gap, the broadest measure of international trade because it includes income payments and government transfers, followed a revised $109.2 billion shortfall for the first three months of 2010, figures from the Commerce Department showed today in Washington. The increase was in line with the median estimate of economists surveyed by Bloomberg News.

“The surge in the second quarter is unlikely to be repeated in the third,” James O’Sullivan, global chief economist at MF Global Ltd. in New York, said before the report. The deficit tends to “rise when the economy is improving and fall when it’s deteriorating. To the extent we’re not double-dipping, if anything, the deficit is likely to edge up” at the end of the year and into next.

Combined with a near-record government budget gap, the figures are a reminder of America’s dependence on attracting foreign capital to fund the so-called twin deficits and prevent interest rates from climbing and preserve the value of the dollar. The decline in borrowing costs this year signals global investors continue to view U.S. assets as safe and liquid.

The shortfall represented 3.4 percent of gross domestic product last quarter, while up from 3 percent previous three months, it’s still off from the 6.1 percent peak reached in late 2006.

Median Forecast

Economists forecast the gap would widen to $125 billion, according to the median of 39 projections in a Bloomberg News survey. Estimates ranged from $119 billion to $130 billion.

The imbalance widened over the past year after reaching a decade-low $84.4 billion in the second quarter of 2009 as the world’s largest economy emerged from the economic slump. The narrowing of the gap last year reflected the plunge in imports as the U.S. sank deeper into the worst recession since the 1930s.

The trade deficit, which accounted for most of the current- account imbalance, grew to $131.6 billion in the second quarter from $114.5 billion in the first. The figures aren’t adjusted for inflation.

Foreign earnings on U.S. assets increased by $411 million to $120.7 billion in the second quarter from the prior three months. U.S. income on overseas assets, including wages and compensation, rose by $615 million to $161.9 billion.

Income Surplus

That left a $41.2 billion surplus on income payments, compared with $40.2 billion the first three months of the year.

U.S. government payments to foreigners and other private transfers abroad exceeded official inflows from overseas by $32.9 billion the second quarter, compared with $34.9 billion in the previous three months.

Treasury Secretary Timothy F. Geithner is scheduled to testify today at separate hearings before House and Senate committees on China’s exchange-rate policy. U.S. lawmakers have faulted China’s currency policy as predatory though they disagree on the need for legislation that would punish the Asian nation for keeping its currency undervalued.

Geithner said the U.S. isn’t satisfied with the pace of yuan gains and is considering ways to urge China to let the currency rise faster.

“The pace of appreciation has been too slow and the extent of appreciation too limited,” Geithner said in testimony prepared for the hearings. “We are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.”

Buying Treasuries

Concern that the global economic recovery is slowing propelled foreign demand for U.S. assets last quarter, which global investors consider safer bets. Non-government foreign purchases of U.S. Treasury securities climbed by $99 billion from April through June after surging a record $103.1 billion the previous three months.

Overseas demand is helping some companies cope with a slowdown in the U.S. Exports climbed in July to the highest level in almost two years, according to data from the Commerce Department.

General Electric Co., the world’s biggest maker of jet engines, locomotives, power-plant turbines and medical-imaging equipment, is bolstering manufacturing in the U.S.

“When I look across the variety of GE’s businesses we see the world getting better,” Chief Executive Officer Jeffrey Immelt said Sept. 13 at the Montana Economic Development Summit. “Slowly but surely we’re pulling out.”

© Copyright 2014 Bloomberg News. All rights reserved.

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