*EPF411 12/16/2004
U.S. Current Account Deficit Sets Record as Imports Increase
(In third quarter foreigners slow net purchases of Treasury securities

) (600)

By Bruce Odessey
Washington File Staff Writer

Washington -- The deficit in the U.S. current account, the broadest measure of U.S. transactions with the rest of the world, increased slightly in July-September to a record high, the U.S. Department of Commerce reports.

According to a December 16 Commerce press release, the third-quarter current account deficit went up to a seasonally adjusted $164.7 billion from a revised $164.4 billion in the second quarter, reflecting the continued rise in the U.S. trade deficit.

The current account deficit reached a historically high 5.6 percent of the size of total U.S. output measured as gross domestic product.

In the third quarter, U.S. imports, up $14 billion to $532.6 billion, continued to increase faster than U.S. exports, up $10 billion to $382.5 billion.

The financial account, which reflects shifts in the current account, shows that foreigners increased their net direct investments in the United States during the third quarter at a faster pace than in the second quarter.

Foreigners sharply slowed increased net purchases of U.S. Treasury securities in the third quarter and somewhat slowed increased net purchases of federally sponsored agency bonds.

Net foreign purchases of U.S. corporate bonds reached a record $84.7 billion in the third quarter.

The exchange rate of the U.S. dollar continued to slide in the third quarter, down 2 percent on a trade-weighted quarterly average basis against a group of seven major currencies.

Regarding European unhappiness with the dollar's slide in value against the euro, President Bush said in December 15 remarks that his administration would press Congress to reduce the federal government budget deficit, including long-term fiscal threats from Social Security and health care programs.

He reiterated that his administration favors a strong U.S. dollar.�� To make "conditions such that a strong dollar will emerge," Bush said, "we'll do everything we can in the upcoming legislative session to send a signal to the markets that we'll deal with our deficit, which, hopefully, will cause people to want to buy dollars."

U.S. trade partners can help resolve the other deficit that worries foreigners, the U.S. trade deficit, he said.

"That's easy to resolve; people can buy more United States products if they're worried about the trade deficit," Bush said.

Following are some key figures:

U.S. CURRENT ACCOUNT

Millions of dollars, seasonally adjusted

year 2003

1st qtr 2004

2nd qtr 2004

3rd qtr 2004

BALANCE ON:









Merchandise trade

-547,552

-150,768

-163,580

-166,731

Services

51,044

12,166

12,496

11,389

Income

33,279

12,164

5,037

5,281

Unilateral transfers

-67,439

-20,726

-18,344

-14,648









Current account

-530,668

-147,164

-164,391

-164,709

U.S. CAPITAL AND FINANCIAL ACCOUNT

Millions of dollars, seasonally adjusted

year 2003

1st qtr 2004

2nd qtr 2004

3rd qtr 2004

NET CHANGE IN:









Capital account transactions

-3,079

-396

-324

-374

U.S. assets abroad(an increase in capital outflow is -)

-283,414

-306,729

-105,810

-133,176

Foreign assets in U.S.

(an increase in capital inflow is +)

829,173����

445,348

270,745

286,412

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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