US: Current Account

Thu Mar 19 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Current Account $-105.0B $-112.5B to $-100.0B $-113.5B $-100.3B $-98.9B

The nation's current account gap widened sharply in the fourth quarter, to $113.5 billion vs a slightly revised $98.9 billion in the third quarter and driving the gap, relative to GDP, up 4 tenths to 2.6 percent. The gap on income is the main culprit, up $11.4 billion in the quarter and reflecting declining equity in foreign affiliates as well as transfers for fines and penalties. On trade, the goods gap rose $4.1 billion but was offset in part by a $1.0 billion increase in the services surplus.

Market Consensus Before Announcement
The U.S. current account deficit widened by $1.9 billion to $100.3 billion in the third quarter from a slightly revised $98.4 billion in the second quarter. As a percentage of GDP, the gap held unchanged at 2.3 percent. The gap on goods widened $7.2 billion to $182.1 billion while the surplus on services narrowed $0.3 billion to $57.7 billion. The surplus on primary income widened $4.2 billion to $59.0 billion which was more than offset by a $12.9 billion widening in the gap on secondary income to $34.9 billion, a widening that reflects fewer US government fines.

The current account measures the United States' international trade balance in goods, services, and unilateral transfers on a quarterly basis. The levels of exports, imports and the current account indicate trends in foreign trade.

U.S. trade with foreign countries holds important clues to economic trends here and abroad. The data can directly impact all the financial markets, but especially the foreign exchange value of the dollar. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States since this trade imbalance creates greater demand for foreign currencies.

The bond market is very sensitive to the risk of importing inflation or deflation. When Asian economies collapsed at the end of 1997, bond and equity investors feared that deflation in these economies would be transported to the United States. While goods inflation did decline modestly and momentarily, service inflation kept on ticking. Thus, the linkage is not so direct.

A chronic current account deficit also suggests that consumers and businesses in the United States are outspending their income. We are living on credit while foreigners are paying for our profligate ways.