U.S. Current Account Deficit Slightly Deeper in 1Q'08

During 1Q'08, the US current account deficit deepened slightly to $176.4 billion from a revised $167.2 billion during last year's final quarter. The Q1 deficit was deeper than the Consensus expectation for a figure of $173 billion.

The deepening pulled the deficit to 5.0% of GDP. That percentage has been fairly stable during the last three quarters and it is much reduced from its peak percentage late in 2005, of 6.5% of GDP.

During 1Q, the deficit on goods trade deepened slightly to $211.0 billion as higher oil prices raised imports by 3.3%. That increase was enough to deepen the deficit even though exports rose by a stronger 4.8% because imports are the greater total. The deficit on goods trade has been fairly steady near $200 billion since late-2005.

The effects of the lower U.S. dollar and the strength of foreign economies versus the U.S. continued to be apparent in the surplus in services trade. It grew to a record $36.1B, and prior figures were revised to show a larger surplus. Exports of travel services grew 23.1% y/y and passenger fares were up 23.9%, after a very much upwardly revised 30.9% y/y 4Q increase. Imports grew 28.9% but travel imports grew 73.4%. They have nearly doubled y/y while passenger fares grew 9.3% (19.8% y/y).

The trade surplus on earned income narrowed to $29.8B as the unilateral transfers deficit deepened to $31.2 billion.

From the capital account, the deficit on private direct investment narrowed to $39.0 billion from $52.7 billion in 1Q '07 as the level of foreign investment more than tripled versus the year earlier level.

Challenges for Health-Care Reform is yesterday's speech by Federal Reserve Board Chairman Ben S. Bernanke and it can be found here

UK orders snapped back to a thin +1 reading for June after -10 net balance reading in May and a deeper decline for April. But the story is that price pressures continue to rage at intense levels at a +28 reading for the July-Sep period barely down from +30 for June-Aug despite some substantial order weakness in earlier months. Export orders made some recovery in June but still posted a net balance reading of -5 up from -12 in May. Stock building was halved from a new reading of +16 to +8 in June.

After having embarked on path of rate cuts, the BOE is having real second thoughts. In its last meeting it was just revealed that the BOE actually considered a rate hike. That news shook sterling markets on the day. With the CIPS report we can see why the BOE is thinking of changing course. Firms are planning price increases on a broad scale and the BOE is currently not happy with the prevailing over-the-target inflation performance it has helped to engineer. With the revelation that the BOE considered a rate hike (but held back) it joins the ranks of other central banks, notably the ECB and the Fed, that are planning to hike rates or warning of the possibility of hiking.

Japan’s LEI was unrevised in April but continues to fall at an accelerating pace. Over 12-mos the index fell at a 5.7% pace, over six-months the rate of decline is at a rate of 6.9% and over the recent three months ended in April the index is falling at an 8.2% annual rate. But compare the composite leading indicators for Japan with that from the OECD. The OECD measure has rebounded and is continuing to show an up-cycle. This is cropping up to be one of the larger divergences between the OECD CLI and Japan’s LEI.