US current account deficit falls to $110.3 billion

The Commerce Department said Thursday that the deficit in the current account dropped 11.6 per cent to $110.3 billion, the lowest level since the final three months of 2009.

The current account is the broadest measure of American's financial dealings with the world. It covers not only trade in goods but also services, such as air travel, and investment flows among nations. Economists watch the current account as a sign of how much the United States needs to borrow from foreigners.

For the third quarter, the deficit in goods dropped 4.6 per cent to $181.8 billion, reflecting a strong 2.6 per cent rise in U.S. exports and a much smaller 0.2 per cent increase in imports.

The U.S. surplus in services increased 4.1 per cent to $46.2 billion with strength led by gains in airline ticket sales to foreigners. The surplus in income rose 2.5 per cent to $58.3 billion in the third quarter. There was also a smaller deficit of $33 billion in unilateral transfers, the category that covers U.S. foreign aid.

Economists at JPMorgan Chase are forecasting that the account deficit will increase this year to $480.2 billion. That would be a modest 2 per cent increase from last year's deficit.

The current account deficit hit an all-time high of $800.6 billion in 2006. It then shrank as the 2007-2009 recession reduced demand for imports. The gap began widening again after the recession ended.

The JPMorgan economists estimate that the account deficit will represent about 3.2 per cent of the economy, the same as in 2010.

The U.S. economy struggled in the early part of the year from a spike in energy prices, supply disruptions caused by the Japanese earthquake and turbulent stock markets. Investors worried about how the European debt crisis would hurt the global economy.

The U.S. economy grew at a scant annual rate of 0.9 per cent in the first half of the year. It was the slowest six-month stretch since the recession ended in 2009. But growth picked up to a 2 per cent rate in the July-September quarter. Many economists say they think the economy will end the year with growth of around 3 per cent.

Even with that rebound, growth would still not be strong enough to make a significant dent in the unemployment rate, which was 8.6 per cent in November.