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Economy in Brief

U.S. Current Account Deficit Widens Further in Q2 with Less Growth in Goods Exports & Steady Growth in Imports
by Carol Stone   September 16, 2010

The U.S. current account deficit widened in Q2 to $123.3 billion from a revised $109.2 billion in Q1; this result was very close to consensus expectations for $123.9 billion. The Q2 ratio to GDP is 3.4%, up from 3.0% in Q1. The balance on goods accounted for the widening, with balances on services, income and unilateral transfers all narrowing somewhat from the prior quarter.

The deficit on goods was $169.6 billion in Q2, larger than the $151.3 billion in Q1. Goods exports increased 3.4%, compared with 5.2% in Q1 and 8.1% in Q4 2009. While Q2 had the slowest growth of the last four quarters, it is important to put this in historical perspective which shows that the five-year average of quarterly growth has rarely exceeded 3%. So this latest quarter continues a cyclical rebound marked by relative vigor. The year-on-year growth totals 24.4%.

Imports of goods grew 6.3% in the quarter and were up 32.2% from a year ago. This too remains stronger than the historical experience. It is often thought that U.S. demand for goods from abroad is insatiable, but in fact the five-year average of quarterly growth did not exceed 3% during the last expansionary cycle phase. So recent gains in excess of that evidently represent some catch-up after the extreme drops during the recent recession.

The surplus on services rose to $38.0 billion in Q2 from $36.9 billion in Q1; the year-ago figure was $33.1 billion. Recent quarters have seen growth in both exports and imports of services. Most notably, we notice a strong rise in "other transportation" on the import side. This largely covers freight charges on foreign-owned shipping lines and follows from the resumption of growth in trade, so it would seem a healthy development.

The balance on income rose modestly to $41.2 billion in Q2 from $40.2 billion the quarter before. Income receipts totaled $161.1 billion, up just $615 million from Q1. Income from private investments, that is, interest and dividends, gained $1.6 billion, its strongest quarterly performance since the middle of 2007. But direct investment income fell back a bit after sizable increases the prior four quarters. Income payments fell slightly in Q2 to $120.7 billion from $121.1 billion in Q1; increases in payments to foreign investors of interest and dividends were offset by a drop in direct investment payments.

Finally, unilateral transfers showed a net outflow of $32.9 billion in Q2, less than the $34.9 billion in Q1. Government grants fell $2.2 billion, with government pensions and private remittances basically unchanged.

Commentary on accompanying financial flow data will follow with coverage of the Federal Reserve Flow-of-Funds, due to be published September 17.

Balance of Payments data all appear in Haver's USINT database, with summaries available in USECON.

US Balance of Payments SA 2Q '10 1Q '10 4Q '09 Year Ago 2009 2008 2007
Current Account Balance($ Bil.) -123.3 -109.2 -100.9 -84.4 -378.4 -668.9 -718.1
    Deficit % of GDP 3.4% 3.0% 2.8% 2.4% 2.7% 4.6% 5.1%
  Balance on Goods ($ Bil.) -169.6 -151.3 -140.1 -113.5 -506.9 -834.7 -823.2
    Exports  3.4% 5.2% 8.1% 24.4% -18.1% 12.5% 12.0%
    Imports  6.3% 6.1% 7.4% 32.2% -26.4% 7.9% 5.8%
  Balance on Services ($ Bil.) 38.0 36.9 35.4 33.1 132.0 135.8 121.1
    Exports 1.9% 2.6% 3.7% 9.7% -6.0% 9.4% 17.1%
    Imports 1.5% 2.1% 2.1% 7.8% -7.0% 8.5% 9.1%
  Balance on Income ($ Bil.) 41.2 40.2 35.1 26.3 121.4 152.0 99.6
  Unilateral Transfers ($ Bil.) -35.5 -34.9 -31.6 -30.3 -124.9 -122.0 -115.6
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