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WASHINGTON — The deficit in the broadest measure of American trade fell more than expected in the third quarter as a boom in exports helped offset an increase in oil imports.
Analysts believe the deficit will keep falling in the months ahead as the drop in imports amid a recession in the U.S. will be greater than the decline in American exports, which also are expected to suffer from a slowdown in many major overseas markets.
The Commerce Department reported Wednesday that the current account trade deficit fell by 3.7 percent to $174.1 billion in the July-September quarter. That was a better showing than the $178.8 billion deficit economists expected.
The current account is the broadest measure of America's dealings with the rest of the world because it includes not only trade in merchandise and services but also investment flows. The deficit represents the amount of money the country is borrowing from foreigners.
The improvement in the third quarter still left the current account as a percentage of the total economy at a sizable 4.8 percent. The revised second-quarter deficit of $180.9 billion had represented an even larger 5.1 percent of the total economy.
For all of last year, the current account deficit totaled $731.2 billion. That imbalance meant the country needed to borrow $2 billion a day from foreigners to finance its activities. So far, foreigners have been happy to sell their products to U.S. consumers and take dollars in payment, investing that money in everything from U.S. Treasury securities to American stocks and real estate.
However, the concern is that this massive transfer of wealth into foreign hands could at some point prove disruptive to the U.S. economy if foreigners decided they do not want to hold dollar-denominated assets.
In the current financial crisis, however, foreigners have rushed to the safety of U.S. Treasury securities, driving U.S. bond yields to historic lows.
Economists believe that the current account deficit will fall sharply over the next year, reflecting big declines that already have occurred in world oil prices and a recession in the U.S. that is already the longest in a quarter-century. That slump has cut Americans' appetite for domestic goods as well as for foreign products.
Foreign auto makers already have been hit by the same economic downturn that has sent General Motors Corp., Chrysler LLC and Ford Motor Co. to Washington in search of a government lifeline.
The decrease in the current account deficit in the third quarter reflected a $1.6 billion narrowing of the goods deficit to $214.7 billion, and a $1.9 billion rise in America's surplus on services, things such as royalty payments and airline fares, to $38.2 billion.
The balance on incomes Americans earn on their overseas investments rose by $2.7 billion to $30.8 billion in the third quarter. That was the amount that U.S. investment earnings exceeded foreign earnings in the U.S.
Unilateral transfers, a category that includes foreign aid and remittances that U.S. workers send to family members overseas, dropped to $28.4 billion in the third quarter which narrowed the current account deficit by $638 million.
