Third-Quarter Trade Gap (Current Account/Bytesbalans) Sets Record
As Investment-Income Deficit Expands
WSJ December 9, 1998

The broadest measure of the U.S. trade gap burst wider in the third quarter, as investments in American financial markets increasingly were seen as a safe haven from tumultuous venues overseas.

The current-account deficit hit a record $61.3 billion in the third quarter, compared to a $56.69 billion gap in the previous quarter, the Commerce Department reported Wednesday. The third-quarter gap was the fourth in a row to set a record and puts 1998 on track to surpass 1997's $166.45 billion deficit, which was the worst since 1987's $168.05 billion gap.

The current account is the widest measure of U.S. trade with the rest of the world, tracking not only goods and services but investments and foreign aid, as well.

Economists have expected the U.S. trade gap to grow further out of balance as investors and consumers overseas are increasingly unable to buy expensive American goods and send their own low-priced items to these shores.

But Wednesday's report painted a slightly different picture. Economists were predicting that gap to reach just $58.3 billion. The trade gap for merchandise actually narrowed in the third quarter, albeit slightly, slimming to $64.36 billion from $64.44 in the second.

The U.S. traditional surplus in services shrank, too, though, falling to $18.61 billion from $20.57 billion.

Meanwhile, the investment-income deficit, which compares receipts on U.S. investments abroad to payments on foreign investments in the U.S., widened to $5.46 billion from $3.38 billion.

The deficit in net unilateral transfers -- aid grants and the like -- expanded to $10.08 billion in the third quarter from $9.44 billion in the second.

As the current-account deficit continues to expand, the U.S. is forced to increase borrowing to help pay for foreign goods. Although interest rates are low, continuing huge deficits ultimately will put upward pressure on lending rates, and that, in turn, could put a drag on economic growth.

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