US: Current Account

Thu Dec 17 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Current Account $-119B $-126.0B to $-110.3B $-124.1B $-109.7B $-111.1B

The nation's current account deficit widened sharply in the third quarter, to $124.1 billion from a revised $111.1 billion in the second quarter. This is the widest gap of the recovery, since the troubles of fourth-quarter 2008. A greater deficit in goods trade, at $0.8 billion in the quarter, is the smallest factor in the widening. A narrowing in the surplus for primary income, at $6.6 billion, and a widening in the gap for secondary income, at $5.8 billion, are the main factors behind the quarter's deficit. The gap relative to GDP rose 1 tenth in the third quarter to a still manageable 2.7 percent.

Market Consensus Before Announcement
Pulled down by weak exports, the current account deficit is expected to widen to $119.0 billion in the third quarter from $109.7 billion in the second quarter. The gap relative to GDP in the second quarter was a manageable 2.6 percent though this reading is expected to move higher.

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.