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Economy in Brief

U.S. Current Account Deficit Shrank in 2007
by Tom Moeller March 17, 2008

The US current account deficit fell last quarter to $172.9 billion from $177.4 billion in Q3. The Q4 deficit was shallower than Consensus expectations for a deficit of $184 billion.

The latest deficit totaled 4.9% of GDP and it peaked as a percentage of GDP nearly two years ago at 6.8% in Q4 2005.

That shrinkage occurred even though the deficit on merchandise trade deepened. Higher oil prices lifted imports and the goods deficit grew to $208.1B from Q3's revised deficit of $200.5B. It was the deepest deficit in just over a year. During the last year only, however, exports grew 14.2% and outpaced import growth of 9.8%.

The effects of the lower U.S. dollar and the strength of foreign economies versus the U.S. is apparent greatest in the surplus in services trade which grew to a record surplus of $30.2B from $28.0B in 3Q. Exports of services during the last year grew 15.2%. Travel exports grew 21.4% y/y and passenger fares were up 19.2%. Imports grew a slower 11.5% due to moderate 7.3% growth in travel and 9.3% growth in passenger fares.

The trade surplus on earned income grew to $33.0B as the unilateral transfers deficit deepened to 28.1B.

Friedman and Taylor on Monetary Policy Rules: A Comparison from the Federal Reserve Bank of St. Louis is available here.

US Balance of Payments, Bil.$, SA 4Q '07 Q3 '07 Year Ago 2007 2006 2005
Current Account Balance ($ Bil.) -172.9 -177.4 -187.9 -738.6 -811.5 -754.8
  Deficit % of GDP -4.9 -5.1 -5.6 -5.3 -6.2 -6.1
  Balance on Goods ($ Bil.) -208.1 -200.5 -200.3 -815.4 -838.3 -787.1
    Exports  2.4% 6.7% 14.2% 12.3% 14.4% 10.8%
    Imports  2.9% 2.9% 9.8% 5.5% 10.7% 12.9%
  Balance on Private Services ($ Bil.) 30.2 28.0 23.4 106.9 79.8 72.8
    Exports 4.4% 4.9% 15.2% 13.4% 8.8% 11.1%
    Imports 3.4% 3.7% 11.5% 8.6% 9.3% 8.7%
  Balance on Income ($ Bil.) 33.0 21.3 9.7 74.3 36.6 48.1
  Unilateral Transfers ($ Bil.) -28.1 -26.2 -20.7 -104.4 -89.6 -88.5
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