The deficit in the broadest measure of international trade rose to an all-time high of $195.1 billion from January through March of this year as the country sank deeper into debt to Japan, China and other nations.
The Commerce Department reported Friday that the deficit in the current account rose by 3.6 percent from the previous quarterly record, an imbalance of $188.4 billion in the final three months of 2004.
The current account deficit has risen to record heights in recent years as America’s demand for foreign goods and services has soared, raising worries about the country’s ability to continue financing a trade deficit at such heights.
“The seemingly insatiable U.S. demand for imports continues to drive the current account deficit higher,” said Nigel Gault, U.S. economist at Global Insight. “At present, the rest of the world is happy to keep financing the deficit — but that won’t be the case indefinitely.”
In other economic news, the preliminary June reading from the University of Michigan survey of consumer sentiment showed a rebound to 94.8, the highest level since January and a sharp increase from the May reading of 86.9.
The gain in consumer confidence helped bolstered confidence on Wall Street with the Dow Jones industrial average finishing the day up 44.42 points to close at 10,623.07. The gain came in spite of another surge in oil prices with crude oil futures hitting an all-time high of $58.60 in intraday trading before settling at $58.47, up $1.89 from late Thursday.
The current account deficit for all of 2004 hit a record $668.1 billion, up a sharp 28.6 percent from the previous record of $519.7 billion in 2003.
The current account is the broadest measure of foreign trade because it covers not only trade in goods and services but also foreign aid and investment flows between nations.
The U.S. deficit must be financed by foreigners agreeing to hold more in dollar-denominated investments, something that so far they have been quite happy to do as they sell Americans more and more foreign cars, television sets and other consumer products.
However, economists worry that at some point foreigners may lose their enthusiasm for dollar-denominated investments and begin dumping their holdings in U.S. stocks and bonds. Such a development could cause interest rates in the United States to soar and push the value of the dollar and stocks down sharply. If the reaction was severe enough, it could push the country into a recession.
Critics of President Bush’s trade policies said the latest jump in the current account deficit was a further sign that American workers are not being protected from unfair foreign competition.
Sen. Byron Dorgan, D-N.D., said the current account deficit had reached “dangerously high levels” and called on the administration and Congress to change course on trade. Dorgan is leading the opposition in the Senate to approval of the administration’s Central American Free Trade Agreement.
“The administration’s trade policies have contributed to the loss of 3 million U.S. manufacturing jobs since 2000. We cannot let that continue,” said Rep. Benjamin Cardin, the top Democrat on the Ways and Means trade subcommittee.
Federal Reserve Chairman Alan Greenspan has called the current account levels unsustainable but he also has said that market forces should be able to deal with the problem in a way that will not seriously disrupt the U.S. economy.
The rise in the current account deficit for the first quarter meant that the deficit now represents 6.4 percent of the total U.S. economy, also a record as a percentage of the gross domestic economy.
The deterioration in the first quarter deficit reflected an increase of $4.15 billion in the deficit in goods which rose to $186.3 billion. This was offset slightly by an increase of $1.62 billion in the surplus in services, which rose to $14.57 billion in the first quarter.
The surplus on investment flows increased by $541 million to $3.78 billion but the deficit in unilateral transfers, a category that includes foreign aid, increased by $4.70 billion to $27.07 billion.
