U.S. Current Account Deficit

WASHINGTON (Reuters) – The U.S. current account deficit widened to a record high in the third quarter due to strong growth in imports and lower income receipts. Economists warn this poses a threat to a country already burdened with a significant government budget deficit.

The Commerce Department’s Bureau of Economic Analysis reported that the current account deficit increased by $35.9 billion, or 13.1%, reaching an all-time high of $310.9 billion last quarter. Economists had expected a deficit of $284.0 billion.

The current account gap represents 4.2% of the gross domestic product (GDP), the highest since the first quarter of 2022, up from 3.7% in the previous quarter. The deficit peaked at 6.3% of GDP in the third quarter of 2006 during the housing market downturn.

While this significant current account deficit does not currently affect the dollar due to its reserve currency status, economists caution that this could change if the trend persists.

The U.S. budget deficit has risen to $1.833 trillion for fiscal 2024, marking the highest level outside the COVID-19 pandemic and increasing by 8% from fiscal 2023.

Paul Ashworth, chief North America economist at Capital Economics, stated, “The U.S. can no longer rely on generating a primary income surplus to keep the deficit in check.” He stressed concerns about the long-term risks posed by the combination of government and external deficits, which could lead to a debt or currency crisis.

Imports of goods increased by $23.7 billion to $837.2 billion, the highest level since the second quarter of 2022, driven by capital goods like computer accessories and electric machinery. In contrast, exports rose by only $13.6 billion to $530.0 billion, mainly due to capital goods.

The goods trade deficit widened to $307.3 billion from $297.2 billion in the previous quarter, the largest since Q2 2022.

Primary income receipts fell by $15.5 billion to $345.7 billion, primarily due to decreased direct investment income, with payments declining by $3.8 billion to $361.2 billion.

The primary income surplus turned into a record deficit of $15.496 billion in the third quarter, following a $3.828 gap in the second quarter. Secondary income receipts increased slightly, but secondary income deficit also widened to an all-time high of $61.871 billion from $45.978 billion in the previous quarter.