US: Current Account


Tue Dec 19 07:30:00 CST 2017

Consensus Consensus Range Actual Previous Revised
Current Account $-116.7B $-119.9B to $-113.5B $-100.6B $-123.1B $-124.4B

Highlights
Hurricane receipts from foreign insurance companies for losses resulting from hurricanes Harvey, Irma, and Maria shaved $24.9 billion from the nation's current account deficit to a much lower-than-expected $100.6 billion in the third quarter.

But the quarter also benefited from a $6.2 billion narrowing in the goods deficit to $195.3 billion which saw gains for capital goods exports and aircraft. Other details include a narrowing in the secondary income deficit on higher income from government fines and penalties and a widening in the primary income surplus on increases in portfolio investment income and in direct investment income.

As a percentage of GDP, the quarter's current account deficit came in at 2.1 percent, well down from 2.6 percent in the prior quarter and the lowest rate since second-quarter 2014. This report of course is skewed by the hurricane effect but other details, especially the narrowing in the goods gap, are nevertheless positive.

Market Consensus Before Announcement
Benefiting from higher exports and lower imports, the current account deficit is expected to narrow sharply in the third quarter, to $116.7 billion from $123.1 billion in the second quarter. The account deficit relative to GDP has been moderate, at 2.6 percent in the second quarter.

Definition
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.

Description
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.