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Deficit reflects import demand
ASSOCIATED PRESS
The deficit in the broadest measure of trade climbed to a record high of $164.7 billion in the third quarter of this year, reflecting Americans' hardy demand for imported oil and foreign-made goods.
The latest snapshot of the country's trade situation, released by the Commerce Department yesterday, actually was better than what economists were anticipating. They had been forecasting the "current account" deficit to mushroom to $171 billion in the July-to-September quarter.
Instead, the deficit widened by a slight 0.2 percent from the $164.4 billion imbalance — the previous high — registered in the second quarter.
In other economic news, the reports were mixed:
•New claims for unemployment insurance last week plummeted by 43,000 to a five-month low of 317,000, the Labor Department said in an encouraging report for the labor market recovery.
•The number of housing projects on which builders broke ground in November plunged 13.1 percent from the previous month to a seasonally adjusted annual rate of 1.77 million units, the Commerce Department said.
It marked the biggest decline in nearly 11 years and pulled down housing starts to the lowest level since May 2003. Economists, expecting a much smaller drop, were surprised.
"I've been preaching to the builders to keep an eye on their inventories of unsold homes, especially with the Federal Reserve raising interest rates," said David Seiders, chief economist at the National Association of Home Builders. "So I really hope this is builders exercising some discipline here to get inventories down."
The current account report is considered the best measure of a country's international economic standing because it tracks not only goods and services but also investment flows between countries and unilateral transfer payments, such as U.S. foreign aid payments.
Federal Reserve Chairman Alan Greenspan warned in a speech last month that the bloated current account deficits eventually could threaten the U.S. economy by souring the foreign appetite for investing in the United States.
So far, foreigners are willing to lend the United States money to finance its current account imbalances, Mr. Greenspan said. The worry is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments.
That could cause them to unload investments in U.S. stocks and bonds, which would send stock and bond prices plunging and interest rates soaring. Japan, followed by China and then Britain, are the biggest holders of U.S. Treasury securities.
The sinking value of the U.S. dollar reflects in part investors' fears about the big U.S. trade and budget deficits.
President Bush pledged yesterday to work with Congress to reduce the government's budget deficit as a key step in assuring the world that his administration supports a strong dollar.
The dollar — compared with other major currencies — rose in trading yesterday — buoyed by the smaller-than-expected current account deficit.
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