WASHINGTON: The deficit in the broadest measure of foreign trade shrank in the spring to the lowest level in relation to the total economy in 10 years, another dramatic sign of how much the recession had reduced America’s appetite for foreign goods.
The Commerce Department said Wednesday the deficit in the current account dropped to $98.8 billion in the April-June quarter. That represented 2.79 percent of the total economy as measured by the gross domestic product, the smallest percentage since the first quarter of 1999 when it was 2.77 percent.
The deficit was down 5.4 percent from the first quarter’s revised total of $104.5 billion. Analysts had been forecasting a second quarter deficit of $92 billion.
The current account is the broadest measure of trade because it includes not only trade in goods and services, which are tracked on a monthly basis, but also investment flows between countries. It is closely watched by economists because it is a measure of how much the country must borrow from foreigners to finance its balance of payments imbalance.
The improvement in the second quarter came almost entirely from a large narrowing of the deficit in goods, which dropped to a deficit of $361.6 billion in the second quarter, down from $373.4 billion in the first quarter.
That improvement reflected sharp declines in imports of a variety of products as the steep recession reduced demand by both businesses and consumers for foreign products.
The government’s monthly reports had also shown a decline in the deficit in goods and services in the spring with the May monthly deficit dipping to the lowest level in nearly nine years.
However, the monthly deficits widened in June and July, indicating that the low point for the trade deficits may have been reached. Economists were actually encouraged by the widening trade deficits, seeing them as another signal that the country’s most severe recession in decades was coming to an end.
Meanwhile, US industrial production rose for a second straight month in August, reinforcing views the recession had ended, while a spike in gasoline costs pushed up inflation. A Federal Reserve report said industrial production increased 0.8 percent after gaining 1 percent in July. The data came a day after Fed Chairman Ben Bernanke said the economic slump that started in December 2007 was “very” likely over.
A Reuters poll released on Wednesday of economists in the United States and Europe forecast strong US economic growth in the current quarter after four quarters of decline.
The poll put growth at a 3 percent annual rate, significantly higher than the 2.4 percent growth rate in the August poll.
The Fed report on industrial production showed there was still a great deal of slack in the economy, allowing the US central bank to keep its benchmark interest rate near zero for a while. The Fed’s policymaking committee meets next week.