4th-Qtr Current Account Deficit Widens

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

03/14 08:30
U.S. 4th-Qtr Current Account Deficit Widens to $136.9 Billion
By Carlos Torres

Washington, March 14 (Bloomberg) --
The deficit in the U.S. current account, the broadest measure of
international trade because it includes investments, widened to a record
$136.9 billion in the fourth quarter, government figures showed.

The gap grew from a revised $126.3 billion in the previous three months,
the Commerce Department said. The size of the shortfall equaled 5.2
percent of the nation's gross domestic product, also the highest ever.

The deficit represents money the U.S. borrows overseas to pay for the
goods and services Americans import, and to finance investment not
covered by U.S. savings. Currently, the U.S. would need to attract $1.5
billion a day to fund the deficit and keep the value of the dollar
steady. With the uneven economic recovery and a looming war with Iraq,
that hasn't been happening.

``In a world in which investors are risk averse, it's getting harder for
the U.S. to attract that much investment from abroad,'' said Jay Bryson,
chief international economist at Wachovia Corp. in Charlotte, before the
report. ``If we continue this environment in which there are questions
about the economic outlook and the geopolitical uncertainties and how
they relate to that outlook, then the dollar is going to continue to
depreciate.''

The dollar has fallen 4.7 percent against a basket of currencies from
its largest trading partners over the past year, including a 7 percent
drop against the Canadian dollar. Canada is the country's largest
trading partner. The dollar is down 24 percent against the euro and off
8 percent against the yen.

Energy Imports

Economists had expected a fourth-quarter deficit of $136.5 billion,
according to the median of 42 forecasts in a Bloomberg News survey,
after a previously reported shortfall of $127 billion from July to
September.

A deficit in the nation's trade account accounts for almost 88 cents out
of every $1 of the current account shortfall. Americans imported $120.2
billion more goods and services than they exported in the fourth quarter
compared with a $110.3 billion trade gap the prior three months.

That portion of the current account gap isn't likely to improve in
coming months of the runup in oil prices amid concerns about war in the
Middle East and supply disruptions from Venezuela.

``The lofty prices of energy imports will keep the trade gap above
recent prevailing levels during the first quarter,'' said Stephen
Stanley, an economist at RBS Greenwich Capital in Connecticut.

Foreign Purchases

The U.S. is paying more to foreigners who own American assets than it's
receiving from Americans' investments abroad. That's contributing to the
overall deficit.

Foreign earnings on U.S. assets, including wages and other compensation,
fell to $65 billion in the fourth quarter from $66.5 in the previous
three months. Income on overseas assets held by U.S. investors fell to
$62.4 from $63.5 billion. That left a $2.6 billion deficit on income
payments from October to December, compared with a $3 billion shortfall
in the third quarter.

U.S. government payments to foreigners and other private transfers
abroad registered a $14.1 billion deficit, accounting for the remainder
of the current account gap.

The country it having to attract more foreign capital to pay for rising
imports. The value of foreign-owned U.S. assets increased in the fourth
quarter, as did U.S.-owned assets abroad.

Foreign ownership of U.S. assets -- including purchases of stocks and
bonds, and direct investment in businesses and real estate -- rose by
$183 billion in the fourth quarter, up from a $129.3 billion increase
the previous three months.

Private international investors were net buyers of Treasury securities
in the fourth quarter. Foreign ownership of Treasuries was a net $12.7
billion, down from $52.9 billion.

U.S. Purchases

Foreign investment in U.S. stocks and bonds other than Treasuries was
$62.6 billion in the fourth quarter, up from $46.5 billion in the third.
Net purchases of stocks were $12 billion, up from purchases of $7.4
billion in the second quarter, while purchases of corporate bonds were
$50.6 billion, compared with $39.1 billion in the third quarter.

U.S. investors bought a net $38.9 billion worth of overseas assets in
the fourth quarter, compared with sales of $40.3 billion in the previous
three months.

``For 20 years the rest of the world has been willing to invest in the
U.S. and that could end in tears,'' said Jeffrey Frankel, professor of
economists at Harvard University, before the report. We could see ``a
real drop-off in the dollar if foreigners are no longer willing to
finance the deficit.''

The decline in the dollar has so far been slow and steady, making others
more sanguine about the deficit.

The dollar's slide ``is a self correcting mechanism that will bring (the
deficit) back'' down,'' said Stephen Cecchetti, a professor at Ohio
State University and a former director of research at the Federal
Reserve Bank of New York, before the report. ``I'm not all that worried.''