WASHINGTON: The US current account trade deficit narrowed in the July-September quarter to the smallest level since late 2010, but the improvement may not last.
The deficit fell to $ 107.5 billion in the third quarter, down 9 percent from the second quarter imbalance of $118.1 billion, the Commerce Department reported yesterday. It was the lowest trade gap since the final three months of 2010.
The current account is the broadest measure of trade. It tracks the sale of merchandise and services between nations as well as investment flows. Economists watch the current account as a sign of how much the United States needs to borrow from foreigners.
Many economists predict the deficit will widen in coming quarters, in part because a global slowdown is dampening demand for American exports.
A debt crisis has pushed much of Europe into recession. The region accounts for about one-fifth of US export sales. And other major export markets, including China, India and Brazil, have experienced slower growth.
The current account deficit hit an all-time high of $ 800.6 billion in 2006. It then shrank after a deep recession reduced US demand for foreign goods by a greater amount than US export sales diminished. The trade gap began widening again after the recession ended in June 2009.
The improvement in the current account in the third quarter reflected a decline in the deficit on goods and a small increase in the surplus on services, led by a gain in foreign earnings made by US companies providing financial services, insurance and professional services. The surplus on investment earnings narrowed to $ 50.8 billion, down from $ 52.1 billion in the second quarter.
The narrowing of the deficit in the third quarter left it at a level equivalent to 2.7 percent of the total economy, down from 3 percent in the second quarter. The third quarter deficit represented the smallest percentage of the economy since the spring of 2009.
Paul Ashworth, chief US economist at Capital Economics, said that most of the improvement reflected a decline in America's foreign oil bill. He predicted that the deficit will remain close to 3 percent of the total economy or slightly below through all of next year.
The deficit in the monthly trade report, which just tracks merchandise and services, increased in October as US exports fell by a larger margin than imports, a development that was seen as a sign that slower global growth was beginning to weigh on the US economy.
The overall economy grew at an annual rate of 2.7 percent in the July-September quarter, but many economists believe growth has slowed to less than 2 percent in the current quarter. They believe that consumers and businesses have grown more cautious about spending and making investments because of the uncertainty over what Congress will do about the "fiscal cliff."
That is the term used for the increases in taxes and spending cuts that will occur automatically in January unless Congress and President Barack Obama reach a budget deal to avert them. Economists have warned that the adverse impact on the economy will be great enough to push the country back into a recession.
Meanwhile, confidence among US homebuilders inched upward this month to the highest level in more than six and a half years as builders reported the best market for newly built homes since the housing boom.
The National Association of Home Builders/Wells Fargo builder sentiment index released yesterday increased to 47, up 2 points from a revised 45 in November. That's the highest reading since April 2006, just before the housing bubble burst.
Readings below 50 suggest negative sentiment about the housing market. The last time the index was at or above that level was in April 2006, with a reading of 51. It has been trending higher since October 2011, when it stood at 17.