U.S. International Transactions in 1999 - Illustration

Federal Reserve Bulletin, May, 2000 by Francis E. Warnock, Nancy E. Baer

The U.S. current account deficit increased substantially in 1999 as the balances on goods and services, investment income, and unilateral transfers all became more negative. The remarkable strength of the U.S. economy contributed significantly to a marked decrease in the balance on goods and services; to a lesser extent, previous declines in U.S. price competitiveness also played a role. The balance on investment income decreased because of the additional net income payments on the growing U.S. external indebtedness.

Most of the widening of the current account deficit in 1999 was due to the large and growing gap between U.S. imports and U.S. exports of goods (table 1). Exports increased as foreign economies rebounded sharply after a weak performance in 1998, but imports increased even more, primarily because of the greater strength of the U.S. economy. The dollar did not strengthen further in 1999, but the continued effect of its sharp appreciation in 1997 and 1998 increased imports and reduced exports. A reduced surplus in trade of services and an increased deficit in unilateral transfers added to the growth of the deficit. The balance on investment income--which moved into deficit in 1998 for the first time since 1914--became even more negative, mainly because of a large decline in net portfolio income.

1. U.S. international transactions, 1995-99

Billions of dollars except as noted

                                                            Change,
                                                            1998 to
       Item          1995    1996    1997    1998    1999    1999

Trade in goods
    and services,
    net               -98    -104    -105    -164    -268     -103
  Goods, net         -174    -191    -197    -247    -347     -100
  Services, net        76      87      92      83      80       -3

Investment
  income, net          24      22       8      -7     -19      -12
Unilateral
  current
  transfers, net      -35     -42     -42     -44     -47       -3

Current account
  balance            -114    -129    -143    -221    -339     -118

Official capital,
  net                  99     133      17     -29      53       82
Private capital,
  net                  38      61     269     239     325       87

Financial account
  balance             137     194     286     210     378      168

Capital account
  balance               0       1       0       1       0       -1

Statistical
  discrepancy         -24     -65    -143      10     -39      -49

MEMO
Current account
  as percentage
  of GDP             -1.5    -1.7    -1.7    -2.5    -3.7      ...

Note. In this and the tables that follow, components may not
sum to totals because of rounding.

... Not applicable.

Source. U.S. Department of Commerce, Bureau of Economics
Analysis, U.S. international transactions accounts.

The current account deficit reached 3.7 percent of U.S. gross domestic product (GDP) last year, surpassing the previous record set in 1987. This deficit and the continued U.S. investment abroad were more than financed by huge foreign acquisitions of U.S. assets. A record amount of private foreign investment poured into the United States; moreover, substantial foreign official inflows resumed after the Asian and Russian financial crises of 1997 and 1998.

MAJOR ECONOMIC INFLUENCES ON U.S. INTERNATIONAL TRANSACTIONS

Several factors shaped the U.S. current and financial accounts in 1999.(1) The most important of these were the recovery of foreign economic activity after the crises of 1997 and 1998, a rebound in the prices of primary commodities, the continued strong performance of the U.S. economy, and the lingering effects of a strong dollar on the price competitiveness of U.S. goods.

Foreign Economic Activity

After a year and a half of financial crises and depressed growth, foreign economies rebounded remarkably quickly in 1999. Foreign economic growth, at a robust 4.3 percent on average for the year, showed a sharp improvement over the 0.8 percent growth in 1998 (table 2). In 1999, the pace of activity increased in developing countries, with Asian emerging-market economies in particular bouncing back strongly from output declines of the previous year. Activity also recovered in Latin America, with especially strong growth in Mexico but a more mixed performance in other countries. Real growth improved in all of the major industrial countries as well. Growth in Canada was particularly strong. Economic activity in Japan remained weak but was stronger than in 1998.

2. Change in real GDP in the United States and abroad, 1996-99

Percentage change, annual rate

           Country              1996   1997    1998   1999

United States                    4.1    4.1     4.7    4.6

Total foreign(1)                 4.3    4.1      .8    4.3

  Asian emerging markets(2)      7.0    4.7    -1.9    8.2
    Thailand                     3.8   -5.1    -7.2    6.8
    Korea                        6.8    3.7    -5.5   14.0
    Malaysia                     9.6    5.7   -10.3   10.6
    Indonesia                   10.2    1.1   -17.7    6.0
    Hong Kong                    5.5    2.2    -5.8    8.6
    China                        9.2    8.2     9.5    6.2

  Latin America(3)               6.3    6.1     1.0    3.7
    Mexico                       7.1    6.7     2.6    5.2
    Brazil                       5.5    2.2    -1.6    3.2
    Argentina                    9.3    7.8     -.6     .1
    Venezuela                     .6    6.7    -5.0   -4.6

  Japan                          5.2    -.5    -3.1     .0
  Canada                         2.4    4.4     2.8    4.7
  Western Europe                 2.2    3.6     1.7    3.2

                                      Half years

           Country

                                1997:H2   1998:H1   1998:H2

United States                      3.4       4.5       4.9

Total foreign(1)                   3.6        .4       1.2

  Asian emerging markets(2)        2.3      -6.1       2.4
    Thailand                     -10.4     -16.2       2.9
    Korea                           .7     -15.8       6.1
    Malaysia                       3.2     -12.8      -7.7
    Indonesia                      3.2     -29.3      -4.2
    Hong Kong                     -2.4      -8.1      -3.4
    China                          6.9       6.7      12.4

  Latin America(3)                 6.2       3.3      -1.3
    Mexico                         6.8       4.0       1.3
    Brazil                         1.9       2.4      -5.4
    Argentina                      8.0       5.4      -6.3
    Venezuela                      2.8        .6     -10.2

  Japan                             .6      -2.7      -3.4
  Canada                           4.5       1.9       3.7
  Western Europe                   3.5       2.4       1.1

                                     Half years

           Country

                                1999:H1   1999:H2

United States                      2.8       6.5

Total foreign(1)                   4.5       4.2

  Asian emerging markets(2)        9.2       7.3
    Thailand                       3.2      10.6
    Korea                         15.2      12.8
    Malaysia                      17.5       4.1
    Indonesia                     11.5        .8
    Hong Kong                      5.7      11.7
    China                          1.7      11.0

  Latin America(3)                 2.8       4.6
    Mexico                         5.0       5.5
    Brazil                         3.6       2.9
    Argentina                     -3.5       3.8
    Venezuela                     -7.7      -1.3

  Japan                            5.1      -4.7
  Canada                           4.3       5.0
  Western Europe                   2.8       3.5

NOTE. Aggregate measures are weighted by moving bilateral shares in
U.S. exports of nonagricultural merchandise. Annual data are
four-quarter changes. Half-yearly data are calculated as Q4/Q2 or
Q2/Q4 changes at an annual rate.

(1.) Selected regions and countries are shown below.

(2.) Weighted average of China, Hong Kong, Indonesia, Korea, Malaysia.
Philippines, Singapore, Taiwan, and Thailand.

(3.) Weighted average of Mexico, Argentina, Brazil, Chile, Colombia
and Venezuela.

SOURCE: Various national sources.