Trade Deficit Shrinks 2.3% in 1st Quarter : International Debt Rises as Imbalance Falls to $37.12 Billion
America’s deficit in the broadest measure of foreign trade shrank slightly in the first three months of the year to $37.12 billion as the country continued to pile up international debt, the government reported today.
The Commerce Department said the imbalance in the nation’s current account edged down 2.3% from the final three months of 1986, when the trade deficit hit a quarterly record of $38 billion.
The current account measures not only trade in merchandise but also trade in services, which includes such items as investment earnings, tourism and foreign aid.
While the United States has run a deficit in merchandise trade for 15 of the last 16 years, the current account recorded a surplus as recently as 1981 as Americans’ earnings on overseas investments were enough to offset the merchandise deficits. In recent years, however, a flood of foreign goods has wiped out the cushion once provided by the investment earnings.
String of Deficits
A relentless string of quarterly deficits in the current account has made the United States the world’s largest debtor country as foreigners now own more in U.S. investments than Americans hold in foreign investments.
America became a debtor country in 1985 for the first time in 71 years, with a total owed to the rest of the world of $107.44 billion.
The precise extent of the country’s slide into hock during 1986 will be released by the government next Tuesday, but based on information contained in the current account report, the U.S. world debt now stands at more than $250 billion, putting the country far ahead of the previous debt leader, Brazil, which owes $108 billion to foreigners.
Merchandise Trade Change
The small improvement in the current account deficit in the January-March quarter came from a slight drop in the merchandise trade deficit to $38.33 billion, 0.7% lower than the fourth quarter. Added to this imbalance between imported goods and the products America sells overseas was $3.1 billion in transfer payments, $1 billion less than the fourth quarter, reflecting a drop in U.S. foreign aid to developing countries.
These figures were offset somewhat by $4.3 billion in net earnings on foreign investments by Americans. While foreigners now own more in American investments than Americans own overseas, the country still enjoys a slight surplus in earnings because the rate of return on many older American investments is higher than foreigners are receiving here.
For all of 1986, the current account deficit hit a record $141.35 billion. The slight improvement in the first quarter figure--if it continues through the year, as many analysts expect--would mean that the 1987 deficit will be lower, although analysts are not looking for much improvement because the big slide in the value of the dollar is making imported goods cost more.
In a separate report, the government said today that housing construction fell 2.7% in May, the third consecutive monthly decline.
