U.S. Current Account Deficit Widens Modestly; Flows of Goods, Services and Capital Show Signs of Recovery

The U.S. current account deficit widened for a second quarter in Q4 to $115.6 billion from $102.3 in Q3. The result was a bit narrower, though than consensus expectations, which called for $118.5 billion. As a percentage of GDP, the deficit was 3.2%, compared with 2.9% in Q3. For 2009 as a whole, the deficit totaled $419.9 billion, much smaller than the $706.1 billion in 2008, and the smallest annual figure since 2001. The year's ratio to GDP was 2.9% and that was the smallest since 2.4% in 1998.

The balance on goods was $145.5 billion in Q4, larger than the $132.1 billion in Q3. Both exports and imports had a second consecutive quarter of increases, with imports, at 9.3%, somewhat more than export, 8.8% [large as these are, they are quarter-to-quarter changes, not annual rates]. This contrasts with the aggregates for all of 2009, which showed a bigger drop in imports, 26.2%, than in exports, at 18.1%. The balance on services hovered in a narrow range, coming at $36.5 billion for Q4, compared with $35.7 billion in Q3 and an average of $35.3 billion over the last eight quarters. Exports of services gained for a third successive quarter and imports for a second. Among exports, freight transportation and "other" private services seem to be leading a recovery. There is little distinctive or sustained change among import categories; foreign travel turned up in Q3, but then edged back, and freight transportation increased modestly in both Q3 and Q4. The balance on income turned down a bit in Q4, but at $25.1 billion and $29.1 billion in Q3, it is well ahead of the first half of 2009, which showed $16.6 billion in Q2 and $18.2 billion in Q1. Direct investment income, both receipts and payments, contributed to an upturn in income flows as economies in the US and abroad come out of recession. Unilateral transfers sagged somewhat in Q4, coming in at $31.8 billion, down from $35.0 and $33.3 billion in Q3 and Q2, respectively. For the year, however, they totaled $130.2 billion, up from $128.4 billion in 2008 and a record for a single year. Government grants and pension payments were larger in the year; private remittances were a bit smaller than in 2008, but were still the second largest annual amount ever.

Financial flows showed somewhat irregular movements. In Q3 and Q4, there were net outflows of US funds as ownership of assets abroad increased. In Q3 this was a substantial $269.2 billion, and in Q4, "just" $99.1 billion. The Q3 amount included securities purchases, bank lending and the receipt of $47.7 billion in an allocation of special drawing rights (SDRs) from the IMF, a world-wide move intended to bolster world trade. For all of 2009, US private assets abroad increased by a total of $727.0 billion, a sharp turn-around from the liquidation of assets abroad of $534.4 billion in 2008. All US assets abroad increased by $237.5 billion for 2009, a very different result from the basically flat pattern in 2008.

Foreigners resumed significant purchases of assets in the US during the second half of 2009, amounting to $343.4 billion in Q3 and $144.8 billion in Q4. Foreign official investors were sizable buyers of US Treasury securities throughout the year, and private investors picked up their direct investment in the second half; while this latter came at a slower pace than 2006 through 2008, it did mark an upturn from quite sluggish amounts in the first half of 2009. These financial flows thus indicate some hesitant recovery following the recent dramatic contractions in world financial markets and the world economy, evident in the last graph by the retreat of both lines toward zero.