Dollar’s Drop Trims U.S. Current Account Deficit

The government’s broadest gauge of trade performance issued on Tuesday showed a narrowing U.S. deficit in the last three months of 1987, but the improvement was mostly due to the decline in the dollar.

The country’s deficit in the so-called current account, which includes trade in merchandise and services as well as financial transactions, narrowed to $38.99 billion in the fourth quarter of 1987 from the record gap of $43.44 billion in the third quarter, the Commerce Department said.

For all of 1987, the U.S. current account deficit was a record $160.69 billion, following a shortfall of $141.35 billion in 1986, the department said.

The improvement in the fourth quarter for the United States came in services transactions, which include international sales of services as well as dividend, interest and income payments on internationally held assets, it said.

After being in deficit on services transactions in the third quarter for the first time since 1958, the country showed a $5.59-billion surplus on such dealings in the fourth period.

The department attributed the shift to the decline in the value of the dollar, which gave Americans an unplanned windfall on income from their foreign assets because the foreign currencies they received gained value over the dollar.

Conversely, foreigners with U.S. holdings lost ground because the dollars they received as income lost value relative to their home currencies.

“The improvement was a good sign,” said Allen Sinai, chief economist of the Boston Co., a New York subsidiary of Shearson Lehman Hutton Inc. “We are past the worst in our current account deficit.”

‘Deficit Still Enormous’

Despite the large surplus on services transactions, economists said the country’s recently acquired status as a debtor nation--meaning the value of U.S. assets owned by foreigners exceeds that of foreign assets owned by Americans--will make further surpluses difficult to achieve.

“We are a huge debtor nation now,” Sinai said. “Our current account deficit is going to suffer as foreigners earn more here than we are earning overseas.”

“Services bounce around from quarter to quarter, but they are in a trend that is getting worse,” said Lawrence Chimerine, chairman of the WEFA Group, an economic forecasting firm in Bala Cynwyd, Pa.

“In nominal terms, the trade deficit still is enormous,” Chimerine added.

Economists said any further reduction in the country’s current account deficit would stem from improvements in the merchandise trade balance.