Ahead of the Bell: US Current Account

US current account likely jumped in 1st quarter after falling to 14-year low at end of 2013

Associated Press
US current account deficit falls to 14-year low
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FILE - In this Wednesday, Oct. 23, 2013, file photo, container ships wait to be off loaded in a thick fog at the Port of Oakland in Oakland, Calif. The Commerce Department releases current account trade measure for the fourth quarter on Wednesday, March 19, 2014. (AP Photo/Ben Margot, File)

WASHINGTON (AP) -- The government reports on the U.S. current account trade deficit for the January-March quarter. The report will be released at 8:30 a.m. Eastern on Wednesday.

BIG INCREASE: Economists forecast that the gap rose nearly 20 percent in the first quarter, to $97 billion from $81.1 billion in last year's fourth quarter, according to a survey by FactSet.

The rise comes after the deficit fell to its lowest level in 14 years in the October-December quarter. A big gain in exports and greater income from overseas drove the decline. The current account deficit fell for three quarters in a row last year and totaled $379.3 billion in 2013. That was the lowest since 1999.

The current account is the country's broadest measure of trade. It tracks not only the sale of goods and services but also investment flows. A wider trade deficit can act as a drag on growth because it means U.S. companies are earning less from their overseas markets.

WIDER TRADE GAP: A bigger deficit in goods and services trade likely widened the current account gap in the first quarter. Exports have fallen in four of the first five months this year, partly reflecting slower growth overseas in many European and Asian markets.

Imports, meanwhile, rose to a record level in April as Americans bought more foreign-made cars, food and computers. The jump in imports has one silver lining: it suggests that Americans were spending more, a sign of consumer confidence.

Still, a larger trade gap in the first three months of this year cut nearly a full percentage point from growth. Economists now estimate the economy contracted at an annual pace of 2 percent in the first quarter. But they expect growth will resume in the current quarter at roughly a 3.5 percent rate.

DEFICIT STILL NARROW: Even if economists' forecasts are accurate, the first quarter's gap would still be relatively low by historical standards. The quarterly deficit usually tops $100 billion. It fell below that level in the final three quarters of last year. That was the first time it had done so since 2009, during and just after the Great Recession.

The quarterly current account deficit regularly topped $150 billion in the four years before the recession.

Two principal trends have narrowed the deficit in the past four years. First, the U.S. has benefited from an oil and gas boom, mostly because new drilling technologies have made it feasible to drill for oil and gas in states such as North Dakota, New York and Pennsylvania.

That's pushed down the trade deficit by boosting petroleum exports and lowering oil imports. Petroleum exports reached a record high last year, while imports dropped by nearly 11 percent.

Secondly, low U.S. interest rates have reduced the payments foreigners have received on their holdings of U.S. Treasury bonds and other investments. Meanwhile, the payments that Americans receive on overseas investments have risen, boosting the nation's investment surplus.

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