US: Current Account

Wed Mar 21 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Current Account $-126.8B $-133.0B to $-120.3B $-128.2B $-100.6B $-101.5B

The current-account deficit increased to a roughly as-expected $128.2 billion in the fourth quarter vs the third quarter's slightly revised $101.5 billion deficit which benefited from $24.9 billion in hurricane-related insurance payments. As a percentage of GDP, the fourth-quarter deficit rose to a still moderate 2.6 percent from the prior quarter's 2.1 percent.

Fourth-quarter details include a swelling in the goods deficit, reflecting rising imports of industrial supplies and consumer goods, and also a deepening deficit in secondary income, here reflecting a decrease in U.S. government transfers.

Market Consensus Before Announcement
The current account deficit is expected to widen sharply in the fourth quarter, to a consensus $126.8 billion from a $100.6 billion total in the third quarter that was helped by receipts from foreign insurance companies for the hurricanes that swept the quarter. As a percentage of GDP, the current account deficit was 2.1 percent in the third quarter for the best showing since second-quarter 2014.

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.