U.S. 2008 Current Account Deficit Shrinks To Smallest Since 2004

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.

It is the largest drop in e-Zone IP since records have been kept. Intermediate goods, capital goods and consumer goods output trends are being clobbered. Each sector is worsening sequentially. Each of the countries displayed: Germany, France, Italy, and the UK, is experiencing sequentially worsening rates of growth for their selected measures of IP.

It is getting worse. The EU is in the belly of the beast and beast is recession.

Statements for Germany today confirm that things are getting worse there and that there are no signs of a turnaround. In France INSEE is now looking for Q1-2009 to be weaker than Q4-2008. In France despite the lobbying Sarkozy has done for more stimulus and relaxation within the Area, French workers are striking as if he could DO SOMETHING about the severity of the recession. They are in fact wanting him to do more to mitigate it. But France, like other EMU members, has to be mindful of the Maastricht rules that apply to budget deficits. Europeans, despite seeing this worsening in their respective economies, are amazingly blasé about doing more to mitigate the effects. Moreover, within the Group of 20 European member are far more interested in rules and regulations for the future than in dealing with current issues. If they were firemen they’d be calling in the arson investigators instead of dousing the still-raging and expanding flames. Europeans are different.