Current-Account Gap in the U.S. Narrowed in Second Quarter

The current-account deficit in the U.S. narrowed more than forecast in the second quarter, helped by a pickup in exports and a bigger income surplus.

The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 12 percent to $117.4 billion from $133.6 billion in the prior quarter, a Commerce Department report showed today in Washington. The median forecast of economists in a Bloomberg survey called for a $125 billion deficit.

Overseas sales may be harder to sustain the rest of the year as a slowdown from Europe to China reduces demand for American-made goods. The balance of payments gap also is a reminder that the world’s largest economy is dependent on foreign investors for funding.

“We’re going to see the current-account deficit widen,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected a $118.8 billion second-quarter gap. “Exports are going to weaken, a reflection of the problems in Europe and slowing emerging markets. Trade may be neutral to a drag” on the economy, he said.

Estimates of the 41 economists surveyed by Bloomberg ranged from a deficit of $137 billion to $118.8 billion. The first- quarter shortfall was revised from a previously reported $137.3 billion.

U.S. stock-index futures fell and the euro weakened on concern European leaders will struggle to resolve the debt crisis. Spain’s two-year notes stayed lower after a bill auction and commodities dropped.

Deficit, GDP

The gap represented 3 percent of gross domestic product last quarter, compared with 3.5 percent in the prior quarter. The deficit reached a record high of 6.5 percent of GDP in the fourth quarter of 2005.

The trade deficit in goods and services, which accounts for most of the current-account gap, decreased to $139.3 billion in the quarter from $148.4 billion in the prior three months, today’s report showed.

More recent figures indicate the current account balance may worsen. The trade gap widened to $42 billion in July from a revised $41.9 billion in June as exports fell, Commerce Department figures showed on Sept. 11. The shortfall with the European Union was the biggest in almost five years.

Manufacturers noting a slowdown in overseas demand include Dow Chemical Co. (DOW), the biggest U.S. chemical maker. The Midland, Michigan-based company this month announced a new global business structure as it seeks to reduce costs.

‘Challenging Environment’

“Industries and sectors worldwide are really in the midst of what we consider an incredible challenging environment,” Andrew Liveris, chief executive officer, told investors at a Sept. 11 conference.

Today’s report showed U.S. income on overseas assets climbed by $1.4 billion to $186.1 billion in the second quarter. Foreign earnings on assets in the U.S., including wages and compensation, decreased by $6.7 billion to $130.6 billion.

That left a $55.5 billion surplus on income payments, up from $47.4 billion in the prior quarter. U.S. investments overseas generally yield more than the Treasury securities that foreign investors prefer to buy, helping maintain the income surplus.

Payments by the U.S. government to foreigners and other private transfers abroad exceeded official inflows from overseas by $33.6 billion last quarter, compared with $32.7 billion in the previous period.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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