U.S. current account deficit widens in Q1 on greater trade deficit

The U.S. current account deficit broadened in the first quarter, mainly driven by a greater trade deficit and a decrease in primary income. The current account deficit widened to USD 116.8 billion in the March quarter from a revised deficit of USD 114 billion seen in the fourth quarter of 2016. The actual figure is less severe than the consensus forecast that had called for a deficit of USD 123.8 billion. The current account balances for the earlier quarter was also downwardly revised. The deficit now represents 2.5 percent of GDP from the fourth quarter’s 2.4 percent, noted Wells Fargo in a research report.

The overall current account deficit broadened mainly due to a USD 5.3 billion widening of the trade deficit. The widening trade imbalance in goods seen in the current account release is in line with the nominal monthly trade balance in goods that dropped further in April. In all, exports of goods and services plus income receipts rose USD 22.5 billion in the first quarter as imports of goods and services plus income payments rose USD 25.2 billion.

In this figure, the level of goods exports rose USD 13.1 billion, which is not sufficient to counter the USD 18.4 billion rise in goods imports. The rise in goods imports mainly shows increased imports of industrial supplies and material crude oil and automotive vehicles and parts.

Recently, there has been softness recorded on the export side of the ledger with exports of automobiles and parts falling USD 532 million, while consumer goods dropped USD 720 million in April. Exports’ overall value has dropped for two straight months now. Furthermore, imports’ value in April was up almost USD 2 billion, with consumer goods imports rising USD 1.9 billion.

The export growth is expected to stay upbeat in the future, although it might come below the growth of import, said Wells Fargo. Thus, real exports are likely to continue exerting certain headwinds on the overall economic growth in the quarters ahead.

The surplus on primary income narrowed by USD 2.6 billion in the March quarter. The red ink in the primary income account was countered by the secondary income balance that rose USD 5.8 billion, stated Wells Fargo. The U.S. saw foreign direct investment of worth almost USD 90.1 billion in the first quarter. This is a marked rise from the USD 17.6 billion figure recorded in the fourth quarter of 2016.