Current account trade deficit widens in 3Q

AP News
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Posted: Dec 16, 2009 10:01 AM

The deficit in the broadest measure of foreign trade posted a sharp increase in the July-September quarter, a sign that the U.S. economy was beginning to rebound as demand for foreign goods increased.

The Commerce Department said Wednesday the current account deficit rose to $108 billion in the third quarter, an increase of 10.3 percent from the second quarter. The deficit matched economists' forecasts.

The increase reflected a sharp widening of the deficit in goods as American demand for imports outpaced the rise in U.S. exports. The widening deficit was seen as evidence that the U.S. economy was beginning to rebound from the worst recession since the 1930s.

The current account is the broadest measure of trade because it includes not only trade in goods and services, which are tracked by the government on a monthly basis, but also investment flows between countries.

The figure is closely watched by economists because it is a measure of how much the country must borrow from foreigners to finance its balance of payments imbalance.

The rise in the deficit in the third quarter marked the first widening of the deficit following four consecutive quarterly declines. Those decreases reflected a deep recession which cut into Americans' demand for foreign products.

The $108 billion deficit for the third quarter represented 3 percent of the overall economy, up from 2.8 percent in the second quarter. It was the highest deficit as a percent of the gross domestic product since the current account stood at 4.3 percent of GDP in the fourth quarter of 2008. However, it was just half of the levels being run in the middle of the decade when the country was setting a string of record trade deficits.

Economists believe that the current account deficit will continue to widen next year but will not climb back to the record levels seen previously because they believe a weaker dollar will continue to help boost U.S. exports.

For the third quarter, the deficit in goods widened to $132.1 billion, up from $115.5 billion in the second quarter. America's surplus in services, items such as airline travel, shipping and financial services, widened slightly to $34.8 billion from $34.2 billion in the previous quarter.

The surplus on investment income widened to $23.7 billion from $16.7 billion, meaning that Americans earned more on their overseas investments than foreigners earned on their U.S. investments. The deficit in unilateral transfers, the category that includes foreign aid, rose to $34.4 billion from $33.4 billion in the second quarter.

U.S. companies have been seeing export sales rise in recent months. Economists believe that continued strength in exports will be a key source of support for the economy as it struggles to emerge from the worst recession since the 1930s.

The rise in exports has been helped by a decline of about 10 percent in the value of the dollar against a group of major currencies since the U.S. currency hit a high for this year in March. A weaker dollar makes American products cheaper and thus more competitive on overseas markets.

The Federal Reserve reported Tuesday that the nation's industrial output rose 0.8 percent in November, a larger gain than economists had expected. Analysts said that part of the strength reflected the rebound many U.S. companies are enjoying in export sales.