U.S. Current-Account Deficit Narrowed Last Quarter

By Bob Willis June 17 (Bloomberg) -- The U.S. current-account deficit narrowed in the first quarter to $101.5 billion, the least since 2001, reflecting a smaller shortfall in trade of goods. The gap, the broadest measure of trade because it includes transfer payments and investment income, was less than forecast and followed a revised $154.9 billion deficit in the previous three months, the Commerce Department said today in Washington. The current-account deficit is narrowing just as the government sells record amounts of debt to pay for economic recovery programs and fund the soaring budget gap. This week’s first summit of Brazil, China, India and Russia highlights the risk that emerging powers may diversify away from dollar assets, potentially lowering their value, as the U.S. tries to tap overseas investors to fund the twin shortfalls. “It’s good news from the point of view of less requirement for external financing,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “The lower the trade and current account deficits, the less capital is needed to finance the overall deficit.” Economists forecast a deficit of $85 billion, according to the median of 37 estimates in a Bloomberg News survey, after an initially reported $132.8 billion shortfall the prior quarter. Forecasts ranged from deficits of $74.7 billion to $112 billion. Foreign earnings on U.S. assets declined to $115 billion from $146.5 billion in the prior three months. U.S. income on overseas assets, including wages and compensation, decreased to $134.3 billion from $167.6 billion. Income Payments That left a $19.3 billion surplus on income payments, compared with a $21.1 billion surplus in the previous quarter. U.S. government payments to foreigners and other private transfers abroad decreased to $29.6 billion from $31.5 billion. A separate Labor Department report today showed the cost of living in the U.S. rose less than forecast in May, culminating in the biggest 12-month drop in prices in almost 60 years. The consumer price index increased 0.1 percent after no change a month earlier, the department said today in Washington. The summit this week of the so-called BRIC nations -- Brazil, Russia, India and China -- comes after Brazil, China and Russia announced plans to shift some foreign reserves into International Monetary Fund bonds. The heads of those states called for a “more diversified” global monetary system in a joint statement released yesterday from the meeting in the Russian town of Yekaterinburg. Trade Deficit The U.S. trade deficit, which accounted for most of the current-account imbalance, narrowed to $91.2 billion in the first quarter from $144.5 billion the previous three months. The figures, which aren’t adjusted for inflation, reflected lower imported oil costs. Weaker consumer spending is boosting household savings and may continue to depress imports, helping to offset increased government borrowing this year as federal spending soars. The Congressional Budget Office projects the budget deficit will reach a record $1.85 trillion this year, boosted by the Obama administration’s stimulus measures. The budget shortfall in May widened to $189.7 billion, a record for the month and compared with a gap of $165.9 billion a year earlier, the Treasury said June 10. Spending rose 5.8 percent while revenue fell 5.7 percent. The current-account gap amounted to 2.9 percent of gross domestic product, the lowest since 1999, compared with 4.4 percent in the prior quarter. The deficit was 6.6 percent of GDP during the last quarter of 2005, the highest level since records began in 1960. GDP Contribution Adjusted for prices, which are the numbers used to calculate GDP, the trade deficit narrowed last quarter, according to the Commerce Department. Trade added 2.2 percentage points to economic growth in the first three months of 2009. International demand for long-term U.S. financial assets grew more slowly in April than the prior month as China, Japan and Russia pared demand for Treasuries, underscoring the danger of U.S. reliance on foreigners to finance the fiscal deficit, figures from the Treasury Department showed this week. Total net purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington. International holdings of Treasuries increased a net $41.9 billion, compared with the $55.3 billion gain in March. Including bills, the holdings fell a net $2.6 billion.