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U.S. Current Account Gap Widens to Record $195.1 Bln (Update3)

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U.S. Current Account Gap Widens to Record $195.1 Bln

June 17 (Bloomberg) -- The current account deficit grew more than expected to a record $195.1 billion from January through March, increasing U.S. dependence on borrowing from abroad to feed Americans' appetite for imports.

Demand consumer goods helped widen the first-quarter gap from $188.4 billion in the fourth quarter of last year, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for a $190 billion gap in the broadest measure of U.S. trade.

The deficit may grow further as the U.S. economy expands faster than those of Western Europe and Japan, and consumers buy more imported clothing, electronic goods and oil. Foreign investors and central banks are financing the gap by about $2 billion a day, through purchases of Treasury bonds, stocks and other securities.

``It's probably going to continue to widen,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte. ``The concern is that foreigners could decide they're not going to finance it anymore, but we haven't seen that yet. In the long run, it has to be corrected, but that could take a long time.''

The current account deficit poses a risk to the economy, because foreign investors who are financing American consumption may eventually look for better returns on the dollar investments, boosting U.S. borrowing costs, Federal Reserve Governor Donald Kohn said this week.

U.S. consumer confidence in the economy, the world's largest, rose this month as the job market improved, a private report showed. The University of Michigan's preliminary consumer sentiment index for the month rose to 94.8, from 86.9 a month earlier. The reading is the highest in five months and the biggest improvement since January 2004.

U.S. Economic Strength

The dollar fell, trading at $1.22 per euro and at 108.9 yen at 10:40 a.m. in New York. Those compare with $1.21 for the euro and 109 yen yesterday.

Treasury Secretary John Snow says the deficit highlights the strength of the U.S. economy.

``U.S. capital markets are deep, liquid, and attract capital,'' he told reporters in Europe this week. He also said the strengthening U.S. economy is reducing the budget deficit through increased tax receipts, which may require less borrowing.

The gap is equivalent to 6.4 percent of nation's $12.2 trillion gross domestic product. At the current pace, the U.S. needs to attract about $2.1 billion a day to fund the deficit and keep the value of the dollar steady.

Goods and Services

The median forecast of $190 billion was from a Bloomberg News survey of 52 economists. The fourth-quarter 2004 deficit was originally reported as $187.9 billion. The annual deficit in 2004 was $668.1 billion, the highest ever.

The current account encompasses interest and dividend payments, profits and government payments such as foreign aid, along with the balance in goods and services trade.

The U.S. deficit in goods and services is responsible for about 88 percent of the current account gap. Americans imported $171.8 billion more goods and services than they exported in the first quarter, compared with $169.2 billion in the prior three months.

``Oil prices are very high, and that means a higher oil bill, and the recent strength in the dollar will hurt exports,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts.

Dollar and Oil

The U.S. dollar rose 1.4 percent during the first quarter against a basket of trading partners' currencies, according to Federal Reserve data. The average price of oil futures on the New York Mercantile Exchange rose to $50.03 a barrel in the first quarter from $48.27 in the prior three months.

The economic slowdown is worsening in Europe and Japanese economic growth is forecast to slow this year, the 30-nation Organization for Economic Cooperation and Development said last month.

The report showed that net foreign ownership of Treasuries grew to $75.5 billion in the first quarter from $15.7 billion in the fourth quarter. Net foreign investment in U.S. stocks and bonds other than Treasuries was $88.2 billion, down from $158.2 billion in the fourth quarter.

The total value of all foreign-owned U.S. assets, including purchases of stocks and bonds and direct investment in businesses and real estate, rose by $226.1 billion in the first quarter. That compares with a $457.9 billion increase in the previous three months.

U.S. Owned Assets

U.S.-owned assets abroad increased by $60.7 billion after rising by $289 billion.

Trade figures from April show the current account deficit may be slow to improve. The monthly gap in goods and services trade widened to $57 billion.

Furniture Brands International Inc., the biggest U.S. furniture company, said last week it plans to fire at least 1,244 workers as it closes four plants in North Carolina and imports more goods.

The action is part of a plan for ``delivering greater value to our shareholders and to our consumers,'' Chief Executive W.G. ``Mickey'' Holliman Jr. said June 7 in a statement from St. Louis.

Sales of Asian-made MP3 music players, digital televisions and notebook computers helped drive profit up 49 percent at Best Buy Co., the No. 1 electronics retailer in the U.S., in the first quarter.

Kohn said this week that the Fed's ``contribution to the unwinding of the imbalances is what we are doing right now: keeping our eye on the overall macro picture, raising interest rates.''

To contact the reporter on this story:
Joe Richter in Washington [e-mail]..


LINK: http://www.bloomberg.com/apps/news?pid=10000103&sid=a.2nVIb8fUj8&refer=us