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Economy in Brief

U.S. 2008 Current Account Deficit Shrinks To Smallest Since 2004
by Tom Moeller March 20, 2009

Recession and lower oil prices worked to sharply shrink the U.S. current account deficit last year. In fact, the 2008 deficit of $673.3 billion was the smallest since 2004. That improvement came despite recessions abroad which limited U.S. exports. Indeed, lower oil prices were at work lowering the cost of imports and the 4Q deficit of $132.8 billion was shallower than the Consensus expectation for a reading of $137.5 billion.

As a percentage of GDP, the shrinkage of the U.S. deficit was even more dramatic. The 4.7% figure for all of last year was the smallest since 2002, the Commerce Department indicated Wednesday. This percentage is well reduced from the 6.6% peak reached late in 2005.

Recession in the U.S. worked with the decline in oil prices to drop the 4Q deficit on traded goods to $174.1 billion, its lowest since 2004. Though growth in goods exports was negative 4.2% y/y, imports fell by a greater 9.3%.

Fewer U.S. citizens went abroad this year and more came here. As a result, the balance on services trade narrowed by the end of 2008 as exports fell more then imports. The 4Q surplus of $33.7B. compared to a peak surplus of $36.5B during 2Q. That decline came as exports fell 5.1% against a 5.3% decline in imports. Nevertheless, for the year as a whole the lower dollar helped raise travel exports (foreign citizens spending more in the U.S.) and services exports grew 17.3% y/y while services imports fell 9.0% during 2008.

From the capital account, the deficit on U.S. private direct investment again grew during 4Q as U.S. investment fell but foreign investment rose. For the year as a whole, the deficit of $643B was by far a record as U.S. citizens invested less abroad.

The Financial Crisis and Community Banking is today's speech by Fed Chairman Ben S. Bernanke and it is available here.

Ties that bind: bilateral trade's role in synchronizing business cycles from the Federal Reserve Bank of Dallas can be found here.

US Balance of Payments SA 4Q '08 3Q '08 Year Ago 2008 2007 2006
Current Account Balance ($ Bil.) -132.8 -181.3 -167.2 -673.3 -731.2 -788.1
    Deficit % of GDP 3.7 5.0 5.0 4.7 5.3 6.0
  Balance on Goods ($ Bil.) -174.1 -216.3 -208.9 -820.8 -819.4 -838.3
    Exports  -16.1% 2.7% -4.2% 12.4% 12.3% 14.4%
    Imports  -17.4% 1.4% -9.3% 7.3% 5.7% 10.7%
  Balance on Private Services ($ Bil.) 33.7 35.4 35.1 139.7 119.1 85.0
    Exports -5.1% 1.0% 0.2% 9.5% 14.6% 11.5%
    Imports -5.3% 2.4% 8.4% 1.7% 8.4% 11.3%
  Balance on Income ($ Bil.) 36.5 29.6 36.2 127.6 81.8 57.2
  Unilateral Transfers ($ Bil.) -28.9 -30.0 -29.8 -119.7 -112.7 -92.0
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