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Tuesday, June 17, 2008

US Current Account Deficit Grows To Biggest Shortfall Since Subprime Collapse

Source: DailyFX

A record low for the US dollar doesn't seem to be incentive enough to counter shaken global investor sentiment and rising fuel prices for curbing the economy's long-standing trade deficits. The current account balance, the broadest measure of trade for the US, reported a bigger than expected increase in the shortfall. A $176.4 billion net outflow from the US marks the biggest shortfall for trade activity since the second quarter of 2007 - just before market conditions changed with the collapse of the subprime market. Economists' estimates were calling for a negative $172.5 billion figure that would have represented a contraction to the originally calculated number for the fourth quarter, which happened to recieve a positive revision to a $167.2 billion deficit. Looking into the Commerce Department's statistics, the unfavorable ballooning of the deficit was encouraged by all three of the current account's main components: goods and services transactions, net income flows and unilateral transfers. The physical deficit was hit by a oppressively high prices for oil and other commodities which was made all the worse by a depreciating dollar. At the same time, the cheap dollar would not generate a considerable increase in exports. For investment trends, global confidence was still shaken by the subprime meltdown and credit crunch which saw the US at its epicenter. Though foreign investment in the US rose 8 percent to $411 billion, the balance of income dropped 18 perent to a $38.8 billion surplus. As this was expected to be one of the key benefactors of a cheap US dollar and perhaps a major source of positive growth going forward, expectations for an economic rebound will certainly be deferred by this number.

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