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Current-Account Gap in U.S. Widened in Third Quarter on Imports

The current-account deficit in the U.S. widened to $127.2 billion in the third quarter, reflecting an increase in imports.

The gap, the broadest measure of international trade because it includes income payments and government transfers, was the biggest in almost two years, figures from the Commerce Department showed today in Washington. Economists forecast the shortfall would widen to $126 billion, according to the median estimate in a Bloomberg News survey.

The figures, along with trillion-dollar government budget gaps, are a reminder of America’s dependence on attracting foreign capital to fund the so-called twin deficits and prevent interest rates from climbing. Evidence the economy is gaining momentum after a slowdown earlier in the year will continue to make U.S. assets attractive to foreign investors looking for safety and liquidity.

“As the economic environment starts to improve, as the smoke starts to clear, you do expect to see foreign investments start to pick up,” Jay Bryson, senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “It’s a vote of confidence that foreigners are willing to invest here.”

The median forecast was based on a survey of 37 projections. Estimates ranged from $115 billion to $132 billion. The Commerce Department revised the second-quarter gap to $123.2 billion from a previous estimate of $123.3 billion.

Share of GDP

The gap represented 3.5 percent of gross domestic product last quarter, compared with 3.4 percent in the second quarter. It’s still off from the 6.5 percent record reached in late 2005.

Another report today showed housing starts climbed 3.9 percent to a 555,000 annual rate, in line with the median forecast of economists surveyed by Bloomberg. Building permits, a sign of future construction, fell 4 percent to a 530,000 pace.

The current-account imbalance has widened since reaching a decade-low $84.4 billion in the second quarter of 2009 as the economy emerges from the worst recession since the 1930s.

The trade deficit, which accounted for most of the current-account gap, climbed to $134.4 billion in the third quarter from $133.1 billion in the second. The figures aren’t adjusted for inflation.

The trade gap narrowed more than forecast in October as exports rose to a two-year high, according to a government report released last week. While foreign demand may continue to be strong, recent increases in retail sales signal imports may pick up in coming months, preventing the deficit from narrowing much more.

Income Surplus

Foreign earnings on U.S. assets, including wages and compensation, increased by $3.62 billion to $124.5 billion in the third quarter, today’s report showed. U.S. income on overseas assets rose by $1.66 billion to $165.5 billion.

That left a $41.1 billion surplus on income payments, down from $43 billion the second three months of the year. U.S. investments overseas yield more than do the Treasury securities that foreign investors prefer to buy, helping maintain the income surplus, said Jay Bryson, senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

U.S. government payments to foreigners and other private transfers abroad exceeded official inflows from overseas by $33.9 billion in the third quarter, compared with $33.2 billion in the previous three months.

Rising Exports

Overseas demand helped manufacturers cope with the slowdown in U.S. growth in the second quarter and is now being complemented by rising consumer spending in the U.S. Retail sales rose 0.8 percent in November after a 1.7 percent jump a month earlier, the biggest back-to-back increase since February and March.

St. Paul, Minnesota-based 3M Co., the maker of Scotch tape and films to brighten television screens, is expanding in emerging markets, which make up one-third of its sales and may climb to as much as 45 percent by 2015, according to company estimates.

“These opportunities continue to grow,” George W. Buckley, chief executive officer, said in a Dec. 7 conference call. Overseas sales will benefit from “India and Latin America, gathering momentum in sort of China-like style.”

The divergence between growth in overseas emerging markets and the U.S. underscores the risk to the value of American financial instruments.

Asset Demand

Global demand for U.S. assets slowed at the start of the fourth quarter as investors sought to take advantage of gains in faster-growing economies overseas. Net buying of long-term equities, notes and bonds totaled $27.6 billion in October, down from $77.2 billion in September, the Treasury Department said yesterday. Including short-term securities such as stock swaps, foreigners purchased a net $7.5 billion compared with a net buying of $80.1 billion the previous month.

Trade with China remains a sticking point for U.S. some lawmakers, who have accused the Asian nation of keeping the value of the yuan low to boost exports, and have pressed China to curb its purchase of dollars and let its currency rise. Treasury Secretary Timothy F. Geithner met with China’s Vice Premier Wang Qishan on Dec. 14 and discussed the economic outlook, currency issues and ways to lower trade barriers.

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