Thursday, December 16, 2004

Well, paint me red and call me a fire hydrant.

The current account deficit figure for 2004:III came in way under expectations this morning. My prediction for the CA balance was -$173.7bn; had -$172bn; Bloomberg had -$170.6bn. We were all wrong.
The U.S. current-account deficit--the combined balances on trade in goods and services, income, and net unilateral current transfers--increased slightly to $164.7 billion in the third quarter of 2004 (preliminary) from $164.4 billion (revised) in the second quarter. An increase in the deficit on goods and a decrease in the surplus on services offset a decrease in net outflows for unilateral current transfers and an increase in the surplus on income.
Now these are only the preliminary figures, to be revised in March, so I'm not throwing the towel in just yet. Still, this is a much better figure than I had expected.

Where did I go wrong? The unilateral current transfers deficit saw a big improvement in 2004:III up to -$14.6bn, its highest level in two years. So there's $3.4bn I missed. In addition, the income balance just keeps chugging along. That's another $5.3bn I missed.

The CA deficit as a percentage of GDP thus rose to -5.58% on the quarter, and revisions to the 2004:II data put the deficit back then at -5.64%, up from an earlier estimate of -5.70%.

I have to admit that I'm amazed the US continues to maintain a postive balance on capital income. Income receipts on US-owned assets abroad hit $92.1bn in 2004:III, the highest nominal figure in history. Of course, income payments on foreign-owned assets in the US hit an all-time record, too, at $85.4bn. Yet this is a truly incredible high-wire act when the market value of the country's net international investment position is -$2.7 trillion -- that is, foreigners own $2.7 trillion more in US assets than Americans own in foreign assets.

Some of this is explained by US assets not returning jack while foreign assets deliver the moon and then some. Some of this must also be explained by foreigners keeping their profits in the US while Americans repatriate theirs. A falling dollar might explain part of it, too, in that foreign profits in euros and yen then turned into dollars will be higher than profits in dollars turned into euros and yen.

Big wheel keep on turning . . .


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