Current account deficit swells - East Valley Tribune: Business

Current account deficit swells

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Posted: Saturday, June 19, 2004 7:21 am | Updated: 6:05 pm, Thu Oct 6, 2011.

WASHINGTON - The deficit in the broadest measure of trade swelled to an all-time high of $144.9 billion in the first quarter of this year, reflecting Americans’ insatiable appetite for foreign-made goods.

The latest snapshot of trade activity, released by the Commerce Department on Friday, showed that the ‘‘current account’’ deficit was 14.1 percent larger than the $127 billion shortfall registered in the fourth quarter of 2003.

The first-quarter’s deficit figure was bigger than the $139.6 billion trade gap that some economists were forecasting and exceeded the previous record high of $138.2 billion set in the first quarter of 2003.

‘‘Americans — even with higher prices — like imported goods,’’ said Clifford Waldman, an economist at the Manufacturers Alliance/MAPI, a research group. ‘‘We clearly need to get the value of the dollar down further,’’ which would make U.S. goods cheaper for foreign buyers, he said.

The current account report is considered the best measure of a country’s international economic standing because it tracks not just the goods and services reflected in the government’s monthly trade reports but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments.

The nation’s trade situation is among the issues that President Bush and presumptive Democratic presidential nominee John Kerry have sparred over as they campaign across the country.

Bush says the best way to handle yawning trade deficits is to get other countries to remove trade barriers and open their markets to U.S. companies. But Kerry points to the deficits as evidence that the president’s freetrade policies aren’t working and are contributing to the loss of U.S. jobs.

America’s current account deficit mushroomed to an annual record of $530.7 billion last year, requiring the United States to borrow that amount from foreigners during a period when the value of the U.S. dollar was falling.

Many private economists worry that if foreigners suddenly should become spooked and start dumping their U.S. holdings, stock prices could plunge and interest rates soar.

However, Federal Reserve Chairman Alan Greenspan has said that as long as a flexible international financial system is maintained, problems should be avoided.

In the January-to-March quarter of this year, the deficit on goods widened to $150.8 billion, up from $139.4 billion in the previous quarter. The government said the deficit on goods accounted for more than half of the increase in the overall current account deficit for the quarter.

In the services category the United States is running a surplus. However, the surplus narrowed slightly in the first quarter to $13.8 billion, from $13.9 billion in the final quarter of 2003.

Investment earnings also is running a surplus. The surplus also decreased to $12.7 billion in the first quarter, compared with $16.2 billion in the previous quarter. The deficit in the category of unilateral transfers, which includes payments that the United States makes in foreign aid to other countries, widened to $20.6 billion in the first quarter, from $17.6 billion in the fourth quarter.

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