US current account deficit shrinks to $178.5 billion
©AFP/File - Bay Ismoyo
WASHINGTON - The US current account deficit narrowed by more than anticipated in the third quarter to 178.5 billion dollars from 188.9 billion in the second quarter, the Commerce Department said Monday.
The current account deficit is viewed as the broadest measure of US trade and income flows. The government survey showed that the vast debt the United States owes the rest of the world eased between July and September.
Most economists had only expected the deficit to shrink to around 183 billion dollars.
"The combination of slower growth in US demand, solid growth in overseas economies, and a declining dollar has been pulling the trade deficit lower as exports have outstripped imports," said Nigel Gault, a US economist at Global Insight.
The balance of payments deficit declined to around 5.1 percent of US economic output or gross domestic product (GDP) during the quarter, marking its lowest level since the first quarter of 2004 and shaving several percentage points off the second quarter's 5.5 percent reading.
The second quarter payments deficit was revised lower to 188.9 billion dollars from an original tally of 190.8 billion.
"Increases in the surpluses on income and on services and a decrease in the deficit on goods more than accounted for the (overall current account) decrease," the government said.
The current account partly shrank as US corporations with overseas operations saw their foreign profits fattened by the weak dollar.
The survey showed the third quarter trade deficit on goods and services narrowed to 173.2 billion dollars compared with 178.4 billion previously.
The services sector posted a surplus of 26.5 billion dollars compared with 25.8 in the prior quarter helping to drive the overall deficit lower.
A pickup in tourism also helped narrow the deficit, the survey showed, in a further reflection of how a weakened dollar is helping trim America's debts with the rest of the world.
The goods deficit meanwhile narrowed only slightly to 199.7 billion dollars compared with a prior reading of 204.2 billon.
"The huge deficit on trade in goods is mostly caused by a combination of an overvalued dollar against the Chinese yuan, a dysfunctional national energy policy that increases US dependence on foreign oil, and the competitive woes of the three domestic automakers," said Peter Morici, a business professor at the University of Maryland.
The United States is the world's biggest energy consumer and has to import much of the crude oil needed to keep its economy lubricated.
The US surplus on income ballooned to 20.5 billion dollars in the third quarter compared with 12.7 billion in the second quarter, partly as the income Americans reaped from assets overseas improved.
Net financial inflows into the United States slowed dramatically amid US economic uncertainty as the economy continues to be buffeted by a prolonged housing downturn and credit crunch.
©AFP/File - Robert Sullivan
Financial inflows -- which subtract the value of acquisitions by foreigners in the United States from acquisitions by Americans overseas -- declined to 93.4 billion dollars in the quarter, down from 152.8 billion dollars previously.
Foreigners also opted to sell off large tranches of US securities and stocks during the quarter, the report showed.
The ailing dollar, however, has boosted exports.
"The narrower current-account deficit is a welcome sign that international trade and payments imbalances are beginning to ease. We expect the deficit to continue to decline, hitting 4.6 percent of GDP in 2008," Gault added.
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