The current-account deficit in the U.S. narrowed in the third quarter, helped by slowing imports.
The gap, the broadest measure of international trade because it includes income payments and government transfers, shrank 9 percent to $107.5 billion, the smallest in almost two years, from a $118.1 billion shortfall in the prior quarter, a Commerce Department report showed today in Washington. The median forecast of economists in a Bloomberg survey called for the deficit to narrow to $103 billion.
Cooling demand in the world’s largest economy is limiting imports at the same time that a slowdown in growth from Europe to China reduces overseas sales, a sign it’ll get harder to keep shrinking the trade deficit. The balance of payments gap also is a reminder the U.S. remains dependent on foreign investors for funding.
“When you get really large current-account deficits you worry about the dollar falling out of bed,” said Jay Bryson, a senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “That’s the good thing here. It’s not an accident waiting to happen.”
Estimates in the Bloomberg survey ranged from deficits of $98.5 billion to $116.1 billion. The second-quarter shortfall was revised to $118.1 billion from a previously reported $117.4 billion.
Stocks rose, extending an eight-week high for the Standard & Poor’s 500 Index, as investors watched for signs of progress in efforts by President Barack Obama and Republicans to reach agreement on a new budget. The 500 Index climbed 1.1 percent to 1,445.49 at 1:09 p.m. in New York.
The gap represented 2.7 percent of gross domestic product last quarter, the smallest in three years and down from 3 percent in the prior quarter. The deficit reached a record high of 6.5 percent of GDP in the fourth quarter of 2005.
The “deficit’s share of GDP is not in red-light territory,” said Bryson. “If it were 6 or 7 percent, I’d be worried that you could see massive reversals in capital flows.”
The trade deficit in goods and services, which accounts for most of the current-account gap, fell to $124.5 billion from $137.4 billion in the prior three months, today’s report showed.
More recent figures indicate the current account balance may help underpin the economy this quarter. Adjusted for prices, which are the figures used to calculate gross domestic product, the trade gap shrank to $46.2 billion in October from $46.6 billion in September, Commerce Department data showed Dec. 11.
A slowdown in overseas demand is clouding the outlook for some manufacturers. United Technologies Corp., the maker of Pratt & Whitney jet engines, this month forecast lower profit and sales next year than analysts projected.
“The challenging macroeconomic environment will continue,” Chief Executive Officer Louis Chenevert said at an analyst meeting on Dec. 13. He expects “solid growth in emerging markets, more growth in America, flattish in Europe.”
Today’s report showed U.S. income on overseas assets was little changed at $184.4 billion in the third quarter, compared with $184 billion in the previous three months. Foreign earnings on U.S. assets, including wages and compensation, increased by $1.65 billion to $133.6 billion.
That left a $50.8 billion surplus on income payments, down from $52.1 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 $33.8 billion last quarter, compared with $32.7 billion in the previous period.