U.S. Current Account Deficit Shows Small Drop

The U.S. current account deficit, the broadest measure of trade and capital flows, dipped slightly in the second quarter to $195.7 billion, the Commerce Department said Sept. 16. The deficit only showed a decline after an upward revision in the first-quarter deficit to a record $198.7 billion, compared with the initial estimate of $195.1 billion. The latest deficit amounted to 6.3% of gross domestic product in the second quarter. This is down from 6.5% of GDP in the first quarter.

The growth in the current account highlights concerns about Americans spending more than they are producing, and it pressures the dollar. Along with the U.S. budget deficit, which hit $413 billion in the past fiscal year, the "twin deficits" require foreigners to pump money into the U.S. at an unprecedented rate. Some experts fear these imbalances are unsustainable and that at some point foreigners may reduce their dollar holdings, forcing U.S. interest rates higher and roiling the global financial system. The drop in the current account was largely due to less foreign aid flowing out of the United States.

The goods and services deficit rose to $173.3 billion in the second quarter from $173.1 billion in the prior three-month period. The goods-only deficit rose to $186.9 billion in the second quarter from $186.3 billion in the January-March period, while the services surplus rose to $13.6 billion from $13.3 billion.

Copyright Agence France-Presse, 2005

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