Broadest measure of US trade deficit falls in 3Q
By MARTIN CRUTSINGER, AP Economics Writer
Friday, December 19, 2008 4:37 PM CST
WASHINGTON - The deficit in the broadest measure of American trade fell more than expected in the third quarter and the declines are likely to intensify as the U.S. recession and falling oil prices sharply narrow the trade gap.
U.S. exporters, however, will face a tough time selling their products overseas as America’s economic woes spread around the globe.
The current account trade deficit fell by 3.7 percent to $174.1 billion in the July-September quarter, the Commerce Department reported Wednesday. That was better than the $178.8 billion deficit that economists expected.
On Wall Street, stocks retreated somewhat after a huge surge Tuesday following the Federal Reserve’s announcement that it was slashing a key rate to nearly zero and would employ “all available tools” to combat the recession. The Dow Jones industrial average lost 99.80 points to close at 8,824.34.
The current account is the broadest measure of America’s dealings with the rest of the world because it includes not only trade in merchandise and services but also investment flows. The deficit represents the amount of money the country is borrowing from foreigners and even with the improvement, that deficit still stands at a sizable 4.8 percent of the total economy.
For all of last year, the current account deficit totaled $731.2 billion, which meant the country needed to borrow $2 billion a day from foreigners to finance its activities.
Nigel Gault, chief U.S. economist at IHS Global Insight, said he expects the gap for this year to fall to around $660 billion and then to plunge next year to $282 billion, which would be the lowest current account deficit in 11 years.
Much of that decline will reflect prices for imported oil, Gault said, which he is forecasting will average just $39 per barrel next year, down from this year’s $94 a barrel. That will significantly trim imports and help to offset an expected decline in U.S. exports as American manufacturers find their overseas markets shrinking amid spreading economic weakness.
Analysts said the global slump will hurt big exporters such as Caterpillar Inc. and other heavy equipment manufacturers that had been enjoying rising export sales because of a construction boom, particularly in Asia.
“We are seeing manufacturing production plunging this quarter and a big driver of that decline is the drop in foreign demand,” Gault said.
The weakness in manufacturing was translating into further layoffs. Cooper Tire and Rubber Co. reported Wednesday that it would cut 1,300 jobs and close a plant in Georgia.
Since 2000, the U.S. has lost 4 million manufacturing jobs, a decline that critics partly blame on the Bush administration’s failure to adequately protect American workers from unfair competition from low-wage countries such as China.
General Motors Corp. and Chrysler LLC are pressing the Bush administration for a government lifeline, saying they will run out of cash within weeks if they don’t get help. Ford Motor Co. has said it has enough cash to survive through 2009.
The current account deficit hit record highs for five consecutive years before declining slightly in 2007. So far, foreigners have been happy to sell their products to U.S. consumers and take dollars in payment, investing that money in everything from U.S. Treasury securities to American stocks and real estate. In the current financial crisis foreigners have rushed to the safety of U.S. Treasury securities, driving U.S. bond yields to historic lows.
Economists said continued big declines in the current account deficit should provide support for U.S. currency in the coming quarters since it will mean fewer dollars being transferred into foreign hands.
However, the dollar fell sharply in trading Wednesday in reaction to the Fed’s interest rate cut as investors dumped dollar holdings because of the prospect of lower U.S. interest rates. The dollar sank to a fresh two-month low against the euro and a 13-year low against the Japanese yen.
The decrease in the current account deficit in the third quarter reflected a $1.6 billion narrowing of the goods deficit, a $1.9 billion rise in America’s surplus on services such as royalty payments, and a $2.7 billion increase in the balance on investment income. It also included a slight drop in unilateral transfers, a category that includes foreign aid and remittances by U.S. workers to family members in other countries.
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