The current account balance for the fourth quarter 2022 narrows to a deficit of $206.8 billion after a revised $219.0 billion in the prior quarter. The level was above the consensus of a deficit of $213.2 billion in an Econoday survey. The higher than anticipated reading is due to new data on transfers of income. The narrower deficit will likely mean an upward revision in the contribution to net exports when the third and final estimate of fourth quarter GDP is released on Thursday, March 30 at 8:30 ET.

Exports of goods, services, and receipts are down a scant 0.1 percent to $1,137.2 billion in the fourth quarter from the third quarter. Exports of goods are down 5.7 percent to $514.9 billion, exports of services are up 2.6 percent, and income receipts are up 6.7 percent. Exports of industrial supplies are the big change in goods, and down $20.1 billion to $193.8 billion. Services exports are higher on a $1.7 billion increase in financial to $44.6 billion, and $2.9 billion higher for travel to $39.2 billion.

Imports of goods, services, and receipts are down 1.0 percent to $1,344.0 billion in the fourth quarter from the third quarter. Imports of goods are down 3.4 percent, imports of services are up 0.6 percent, and income payments are up 3.7 percent. Imports of goods are down mainly due to a $17.2 billion decline in industrial supplies to $188.8 billion and a $13.1 billion dip for consumers goods excluding food and automotive to $189.9 billion. Imports of services are up mainly from a $3.1 billion rise in travel to $34.1 billion.

The fourth-quarter current account deficit is expected to hold steady at $213.2 billion versus $217.1 billion in the third quarter.

The current account, on a quarterly basis, measures the U.S. international balance in goods and services trade as well as unilateral transfers. (Bureau of Economic Analysis)

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.