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Current Account Deficit Slumps To $98.8b, Lowest In 18 Years

Wed, 09/16/2009 - 4:21am
Martin Crutsinger, AP Economics Writer

September 16, 2009

WASHINGTON (AP) — The deficit in the broadest measure of foreign trade shrank in the spring to the lowest level in relation to the total economy in 18 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 2.8 percent of the total economy as measured by the gross domestic product, the smallest percentage since the first quarter of 1991.

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.

U.S. companies saw export sales rise in recent months, indicating a rebound in global demand is starting. That would be good news for beleaguered manufacturers, who have had to struggle with falling domestic demand and falling export sales as the downturn that began in the United States in December 2007 has spread globally.

Jim Owens, CEO of Caterpillar Inc., the world's largest maker of mining and construction equipment, told analysts last month that his company was poised to benefit from the global economic recovery but would be able to turn a profit even if the recession drags on longer than now expected. Caterpillar in July had reported a 66 percent drop in second quarter earnings, blaming weaker sales for its products and the cost of job cuts.

Other big companies which are dependent on foreign markets including General Electric Co., Coca-Cola Co. and drug maker Merck & Co. have resorted to significant cost cutting to protect their bottom lines in the midst of the steep downturn.

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