U.S. international transactions in 2007

Survey of Current Business, April, 2008 by Christopher L. Bach

THE U.S. current-account deficit--the combined balances on trade in goods and services, income, and net unilateral current transfers--decreased to $738.6 billion in 2007 from $811.5 billion in 2006. The decrease--the first since 2001--was more than accounted for by increases in the surpluses on income and on services and a decrease in the deficit on goods. An increase in net unilateral current transfers to foreigners was partly offsetting (table A, chart 1).

Net financial inflows--net acquisitions by foreign residents of assets in the United States less net acquisitions by U.S. residents of assets abroad--were $657.4 billion in 2007, down from $833.2 billion in 2006. Net acquisitions by U.S. residents increased much more than net acquisitions by foreign residents.

The statistical discrepancy--errors and omissions in recorded transactions--was a positive $83.6 billion in 2007, compared with a negative $17.8 billion in 2006.

The following are highlights for 2007:

* The deficit on goods decreased slightly. Export growth remained high in response to relatively strong real GDP growth in most advanced and developing economies and to the cumulative impact of dollar depreciation over the past 2 years. Import growth slowed substantially, largely because of a reduction in U.S. real GDP growth to 2.2 percent from 2.9 percent; the slowdown in imports was reflected in the smaller increases in both nonpetroleum and petroleum imports.

* The surplus on services increased a sizable amount. Services receipts accelerated, while services payments increased at the same pace as in 2006.

* The surplus on income doubled. The surplus on direct investment income increased substantially and the surplus on portfolio income increased moderately. The combined surpluses more than offset the increase in the deficit on U.S. government income.

* U.S.-owned assets abroad increased much more in 2007 than in 2006. Both U.S. claims reported by U.S. banks and U.S. direct investment abroad increased by much larger amounts than in 2006. These increases were partly offset by a small slowdown in net U.S. purchases of foreign securities and a sizable shift to a reduction in U.S. claims reported by U.S. nonbanking concerns.

* Foreign-owned assets in the United States increased slightly more in 2007 than in 2006. U.S. liabilities reported by U.S. banks and foreign direct investment in the United States increased by much larger amounts than in 2006. Net foreign purchases of U.S. securities other than U.S. Treasury securities slowed sharply, while net foreign transactions in U.S. Treasury securities shifted to sizable net purchases. U.S. liabilities reported by U.S. nonbanks also slowed.

* In 2007, the U.S. dollar depreciated 6 percent on a trade-weighted yearly average basis against a group of seven major countries (table B, chart 2).

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Current Account

Goods and services

The deficit on goods and services decreased to $708.5 billion in 2007 from $758.5 billion in 2006. The deficit on goods decreased for the first time in 6 years, and the surplus on services increased (table C).

Goods

The deficit on goods decreased to $815.4 billion in 2007 from $838.3 billion in 2006. Goods exports grew strongly, continuing the strong growth that has been evident since mid-2003. Goods imports slowed substantially as a result of sizable slowdowns in both non petroleum and petroleum imports (charts 3 and 4).

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Goods exports increased $126.1 billion, or 12 percent, to $1,149.2 billion in 2007, following an increase of $128.5 billion, or 14 percent, in 2006. Capital goods and industrial supplies and materials led the increase and accounted for just over half of the increase in 2007; smaller increases occurred in foods, feeds, and beverages, in consumer goods, and in autos (tables D and E).

Goods imports increased $103.2 billion, or 6 percent, to $1,964.6 billion in 2007, following an increase of $179.6 billion, or 11 percent, in 2006. Industrial supplies and materials and consumer goods led the increase and accounted for nearly two-thirds of the increase in 2007; a sizable increase also occurred in capital goods (tables D and E).

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U.S. exports remained strong in 2007, slowing only slightly, largely in response to small slowdowns in real GDP growth abroad. Real GDP growth in the euro area slowed to 2.5 percent from 2.8 percent in 2006. Growth also slowed in Canada to 2.5 percent from 2.8 percent, and in Japan, to 2.0 percent from 2.2 percent. Growth in the newly industrialized countries in Asia slowed to 4.9 percent from 5.3 percent, and in Latin America slowed to 5.0 percent from 5.5 percent (table F). A sizable decline in the dollar against the currencies of many of the industrial and developing countries over the past 2 years partly offset the negative impact on exports of slower real GDP growth abroad.

U.S. imports slowed in 2007 largely in response to U.S. real GDP growth, which dropped to 2.2 percent in 2007 from 2.9 percent in 2006 (table F). The slowing in imports was evident in the sizable slowdowns in the increases in both nonpetroleum and petroleum imports. Real GDP growth in both 2007 and 2006 trailed that of 3.1 percent in 2005 and 3.6 percent in 2004. The slowing in real GDP growth since 2004 has resulted in successively smaller import growth each year since then.