US: Current Account

Thu Sep 15 07:30:00 CDT 2016

Consensus Consensus Range Actual Previous Revised
Current Account $-122.8B $-130.0B to $-118.0B $-119.9B $-124.7B $-131.8B

The nation's current account deficit narrowed in the second quarter to minus $119.9 billion vs a revised minus $131.8 billion in the first quarter. In positive reversals from the first quarter, the surplus on primary income widened back out while the deficit on secondary income narrowed. Marginal weakness in goods exports was offset by strength in service exports. The gap relative to GDP came in at 2.6 percent, noticeably lower than the prior quarter's 2.9 percent.

Market Consensus Before Announcement
The current account deficit widened in the first quarter to $124.7 billion from $113.4 billion in the fourth quarter. A narrowing in the primary income surplus and a widening in the secondary income deficit were main negatives in the second quarter, offsetting slight improvement for net exports. As a percentage of GDP, the deficit came in at 2.7 percent in the first quarter, still moderate but up from the fourth quarter's 2.5 percent.

The current account measures the United States' international trade balance in goods, services, and unilateral transfers on a quarterly basis. Readings in this report track trends in cross-border 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.