WASHINGTON – The deficit in the broadest measure of trade climbed to a record high of $164.7 billion in the third quarter of this year, reflecting Americans' hearty demand for imported oil and foreign-made goods.
The latest snapshot of the country's trade situation, released by the Commerce Department (search) on Thursday, actually was better than what economists were anticipating. They were forecasting the "current account" deficit to mushroom to around $171 billion in the July-to-September quarter.
Instead, the deficit widened by a slight 0.2 percent from the $164.4 billion imbalance registered in the second quarter. Nevertheless, the third quarter's figure was an all-time high.
In other economic news, the reports were mixed:
— New claims for unemployment insurance last week plummeted by 43,000 to a five-month low of 317,000, the Labor Department (search) said in an encouraging report for the labor market recovery.
— The number of housing projects builders broke ground on in November plunged by 13.1 percent from the previous month to a seasonally adjusted annual rate of 1.77 million units, the Commerce Department said. It was the lowest level since May 2003. Economists were expecting a smaller drop.
The current account report is considered the best measure of a country's international economic standing because it tracks not only goods and services but also investment flows between countries and unilateral transfer payments, such as U.S. foreign aid payments.
Federal Reserve Chairman Alan Greenspan (search), in a speech last month, warned that the bloated current account deficits eventually could threaten the economy by souring foreign appetite for investing in the United States.
So far, foreigners are willing to lend the United States money to finance its current account imbalances, Greenspan said. The worry is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments.
That could cause them to unload investments in U.S. stocks and bonds, which would send prices of the stocks and bonds plunging and interest rates soaring. Japan, followed by China and then Britain, are the biggest holders of U.S. Treasury securities.
Japan pared holdings of Treasury securities in October to $715.2 billion, from $720.3 billion in September, according to information collected by the Treasury Department. China, however, increased its holdings slightly to $174.6 billion in October from $174.3 billion in the previous month.
The sinking value of the U.S. dollar, which reflects in part investors' fears about the big U.S. trade and budget deficits, has some private economists more worried about the potential risk of a retreat by foreign investors.
President Bush pledged on Wednesday to work with Congress to reduce the government's budget deficit as a key step in assuring the world that his administration supports a strong dollar.
Bush's commitment, though, didn't seem to have much weight with traders. The dollar slumped anew against the euro and the yen on Thursday.
The Bush administration publicly espouses a "strong dollar" policy, but it hasn't taken steps to break the dollar's slide. Private economists believe that's because the administration sees the potential for a weakening dollar to help boost U.S. exports. The weaker dollar makes U.S. goods less expensive to foreign buyers, thus bolstering U.S. companies' competitiveness in international markets.
In the third quarter, the deficit on goods widened to $166.7 billion, from $163.6 billion in the second quarter, as imports continued to outpace exports.
The advance in imports in the third quarter reflected stronger demand for crude oil as well as industrial supplies and materials and capital goods. On the exports side, gains were recorded for industrial supplies, automobiles and parts, and capital goods. The report offers a broad look and doesn't provide details.
In the services category, the United States is running a surplus. However, the surplus narrowed to $11.4 billion in the third quarter, from $12.5 billion in the second quarter.
For the category of investment earnings, the country also is running a surplus. The surplus increased to $5.3 billion in the third quarter, from $5 billion in the previous quarter.
The deficit in the category of unilateral transfers, which includes payments that the United States makes in foreign aid to other countries, narrowed to $14.6 billion in the third quarter, compared with $18.3 billion in the second quarter.