Your Economy (No Politics)

[Bullwinkle]

US current account deficit narrows
Fri Jun 16, 10:30 AM ET


WASHINGTON (AFP) - The US current account deficit, the broadest measure of trade and investment flows, narrowed to 208.7 billion dollars in the first quarter from 223.1 billion in the prior quarter, official data showed.

The deficit reported by the Commerce Department was smaller than the average market estimate of 223 billion dollars, and thus could ease pressure on the US dollar.

The deficit is equivalent to a huge debt owed by the United States to the rest of the world. So far, the US economy has financed its current account gap on favorable terms thanks to foreign demand for US securities.

The latest report showed the deficit -- which includes trade as well as income flows and aid payments -- amounted to 6.4 percent of US gross domestic product, down from 7.0 percent in the prior quarter.

The agency made a small downward revision to the deficit for the fourth quarter of 2005, which was initially estimated at 224.9 billion dollars.

The revision to the fourth-quarter figure, as well as a revised calculation of investment data, placed the deficit for 2005 at 791.5 billion dollars, down from an initial estimate of 804.9 billion.

The report showed the deficit in goods fell to 208 billion dollars in the first quarter from 212.5 billion in the fourth quarter. Exports rose to 244.5 billion dollars, but this was swamped by imports of 452.5 billion.

The surplus in services decreased to 17.2 billion dollars from 17.7 billion in the fourth quarter.

The balance on income shifted to a surplus of 1.9 billion dollars after a deficit of 2.2 billion in the fourth quarter.

Other transfers, which include remittances to families and aid payments, represented a deficit of 19.9 billion dollars, down from 26.2 billion.

Although the deficit remains high, the narrowing nonetheless appeared to stem the increase in the massive outflows that some economists say create huge global imbalances.

Jay Bryson, global economist at Wachovia Securities, cautioned against reading too much into the drop in the deficit, saying it was mainly the result of investment income and other financial transfers, which are hard to predict.

"Looking forward, we expect that the dynamics of the balance of payments will continue to exert downward pressure on the greenback," Bryson said.

"The current account deficit may not get much bigger, but it likely will not decline significantly anytime soon."

Bryson said the narrowing of interest rate differentials between the United States and the rest of the world "will reduce the relative attractiveness of US assets" and, as a result, "it will become increasingly harder for the United States to finance its current account deficit."

http://news.yahoo.com/s/afp/20060616/ts_alt_afp/useconomytradeaccount_060616143031