U.S. Trade Deficit Hits $30.99 Billion : Services Sector Has First Quarterly Loss Since 1958

The deficit in the broadest measure of U.S. trade edged up to $30.99 billion during April through June as the country recorded its first deficit in services trade in more than three decades, the government reported today.

The Commerce Department said the deficit in the current account was up 2% from a $30.39-billion deficit in the first three months of the year.

The current account, also known as the country’s balance of payments, is the most important trade statistic because it measures not only trade in merchandise but also trade in services. The services category primarily reflects investment flows between countries.

The services portion of the current account fell from a surplus of $1.5 billion in the first quarter to a deficit of $176 million in the April-June quarter. It was the first quarterly deficit in the services category since 1958.

Ominous Warning

Analysts saw this decline as an ominous warning of what is in store for the United States in the future as more and more of the nation’s wealth will have to be transferred overseas to service the debt held by foreigners. Many economists believe that this transfer will ultimately lower Americans’ standard of living.

The deficit rose in the spring quarter despite the fact that the balance on merchandise trade showed an improvement, narrowing by 2.3% to an imbalance of $27.72 billion in the second quarter.

The other segment of the current account, unilateral transfer payments, which cover U.S. foreign aid payments and pensions to Americans living overseas, fell by 11.4% to $3.1 billion in the spring.

The current account deficit reflects the sum of the deficits in services, merchandise trade and unilateral transfers.

For the first six months of the year, the current account deficit ran at an annual rate of $122.76 billion, down only slightly from the 1988 deficit of $126.55 billion. The 1988 deficit reflected a 12% improvement from an all-time high of $143.7 billion in 1987.

Little Improvement Predicted

Many economists predict that the current account deficit will show little improvement this year and will actually begin to worsen again in 1990. They base this pessimism on the fact that the U.S. dollar has risen sharply in value against other currencies.

That increase is expected to cut into the growth of U.S. exports since a stronger dollar makes American goods more expensive on overseas markets.

Because the current account covers both merchandise trade and investment flows, it provides a measure of the amount of money the United States must raise abroad to finance its economy.

At the start of this decade, the United States was running surpluses in its current account because earnings from American investments abroad were enough to offset perennial deficits in merchandise trade.

But as Americans transferred billions of dollars into foreign hands to pay for imported cars and televisions, the investment cushion shrank rapidly and disappeared altogether in 1985, when the United States became a net debtor for the first time in 71 years.

Simply put, that means foreigners now own more in U.S. assets than Americans own overseas. At the end of 1988, that net debtor position stood at $532.5 billion, up 41% from 1987.