U.S. trade deficit narrowed in 12.1 per cent in April-June period
A South Korean bank clerk works next to bundles of U.S. banknotes at the head office of the Korea Exchange Bank in Seoul, South Korea, Thursday, March 3, 2011. (AP Photo/ Lee Jin-man)
Published Tuesday, September 18, 2012 10:35AM EDT
WASHINGTON -- The U.S. current account trade deficit narrowed in the April-June period, pushed lower by an increase in American exports and cheaper oil imports.
The Commerce Department said Tuesday that the deficit in the current account decreased 12.1 per cent to $117.4 billion in the second quarter. That's down from a deficit of $133.6 billion in the January-March quarter, which had been the largest in three years.
The current account is the broadest measure of trade. It tracks the sale of merchandise and services between nations as well as investment flows. Economists watch the current account as a sign of how much the United States needs to borrow from foreigners.
Many economists predict it will widen again in coming quarters. A global slowdown has dampened demand of for U.S. exports. And oil prices are rising again, in part because of increased Middle East tensions.
Europe's debt crisis has pushed much of the region into recession. The region accounts for about one-fifth of U.S. export sales. And other major export markets, including China, India and Brazil, have experienced slower growth.
The current account deficit hit an all-time high of $800.6 billion in 2006. It then shrank after a deep recession reduced U.S. demand for foreign goods by a greater amount than U.S. export sales were dampened. The trade gap began widening again after the recession ended in June 2009.
The economy grew at an anemic annual rate of 1.7 per cent in the April-June quarter and job growth has been disappointing.
The Federal Reserve last week said it will purchase an average of $40 billion a month in mortgage-backed securities until the economy shows significant improvement. The goal of the program is to lower long-term interest rates and encourage more borrowing and spending. The Fed also said it plans to keep its benchmark short-term interest rate near zero until mid-2015.
In the April-June quarter, deficit in goods sold shrank to $185.8 billion, down from a deficit of $194.3 billion in the first quarter. U.S. exports rose 1.4 per cent to $394.1 billion. Sales of farm products, led by a sharp rise in exports of soybeans, drove exports higher. Imports fell 0.5 per cent to $579.9 billion, reflecting a drop in petroleum imports.
The U.S. surplus in services increased 1.3 per cent to $46.5 billion. The gain was due to stronger U.S. overseas sales of financial services, business and professional services and higher royalties to U.S. companies.
The surplus in investment income increased 0.8 per cent to $184.6 billion in the second quarter, reflecting higher interest and dividend payments earned by U.S. investors on their overseas holdings.
Net unilateral transfers, a category, which includes foreign aid payments, rose 2.7 per cent to $33.6 billion in the second quarter.
The various changes left the current account deficit at 3 per cent of the total economy, down from 3.5 per cent in the January-March quarter.
Sal Guatieri, senior economist at BMO Capital Markets, said the 3 per cent level for the current account deficit was less than half the peak hit in late 2005 when the deficit represented 6.5 per cent of the overall economy.
He predicted that the deficit will decline modestly in 2013 as exports receive a boost from a weaker U.S. dollar which makes American products cheaper and more attractive in overseas markets.