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Economy in Brief

Another Record U.S. Current Account Deficit in 3Q
by Tom Moeller     December 18, 2006

Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of $225B.

The deficit last quarter equaled 6.8% of GDP and so far this year has averaged 6.64% versus 6.35% during all of last year .

The deficit in merchandise trade deteriorated to $218.6B from an unrevised 2Q deficit of $210.6B. Exports grew 3.6% (16.5% y/y) yet that strong gain was again offset by a 3.7% surge in imports (13.5% y/y).

Last quarter, higher oil prices caused the balance in petroleum trade to deteriorate to $75.2B from $71.4B during 2Q. The nonpetroleum trade balance reversed all of its 2Q improvement and fell to $138.7B which was just shy of the record set during last year's fourth quarter.

The surplus in services trade improved sharply to a surplus of $18.3B from a revised $17.5B during 2Q which was better than initially estimated. Exports of services grew just 0.9% (8.5% y/y) last quarter but services imports grew an even smaller 0.1% (8.6% y/y).

The U.S. capital account improved q/q though the net US foreign direct investment balance deteriorated. U.S. direct investment abroad rose 35% to $$63.1B (37.7% y/y). Foreign direct investment in the US, however, increased $44.1B, less than the $45.8B increase during 2Q.

Would Protectionism Defuse Global Imbalances and Spur Economic Activity? from the Federal Reserve Bank of New York is available here.

Should We Worry About the Current Account Deficit? from the Federal Reserve Bank of Richmond can be found here.

How Dangerous is the U.S. Current Account Deficit? from the Federal Reserve Bank of St. Louis is available here.

US Int'l Balance of Payments 3Q '06 2Q '06 Y/Y 2005 2004 2003
Current Account Deficit $225.6 $217.1B $183.4B (3Q'05) $791.5B $665.3B $527.5B
  Goods/Services/Income Deficit $204.1 $195.3B $174.0B (3Q'05) $705.4B $583.7B $458.3B
    Exports 2.9% 5.7% 19.0% 14.6% 15.7% 5.9%
    Imports 3.4% 4.3% 18.5% 16.3% 18.7% 7.4%
  Unilateral Transfers Deficit $21.5B $21.9B $9.5B (3Q'05) $86.1B $81.6B $69.2B
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