In a report reflecting both the burgeoning U.S. economy and its increasingly worrisome reliance on foreign capital, the Commerce Department said Tuesday that the nation's overall financial deficit with the rest of the world ballooned last year to a massive $155.7 billion--a 50% increase over 1993.
The government also reported that during the fourth quarter of 1994 alone, the deficit soared to a record $44.8 billion.
Technically known as the nation's "current account deficit," the figure is the widest measure of financial transactions between the United States and other countries. It includes not only trade in manufactured goods but also services and investments.
"That's impressive," economist Alan Stoga said of the Commerce Department's report, reflecting as it does the country's continuing ability to boost its standard of living by buying more from the rest of the world than it sells.
But Stoga said that dependence on foreign investment, which is drawn here by attractive interest rates or favorable exchange rates, means that the economic boom may not be sustainable.
The only year in which the annual current account balance was worse was in 1987, when the deficit was $167.1 billion.
The trade reports come at a period of serious instability in world financial markets. The dollar, weak throughout 1994, has become even more anemic in recent weeks. The Japanese yen and German mark have hit record highs in relation to the dollar, and the Mexican economy, once considered a comer in the emerging markets, is seriously troubled.
Still, there are both negative and positive aspects to the current account figures as well as to the weaker dollar.
For one thing, if the value of the dollar remains depressed, the trade figures should improve in the current year because U.S.-made goods and services will become comparatively less expensive in foreign countries and the cost of imported goods will rise in the United States.
Moreover, some economists see the continuing influx of foreign capital as a sign of economic strength. Said Jagdish Baghwati, a professor of economics at Columbia University: "It's the robustness of the economy that is pulling in resources. It's not a sign of weakness. It's a sign of strength. This is a conventional effect of the recovery."
The other side of the coin is that, with the dollar falling in value, the United States could be forced to raise interest rates to hold foreign investment, thereby choking back the current economic recovery. And should foreign investors decide to pull out of the United States on a large scale, the result could be something similar to the bleak realities of today's Mexican economy.
According to the Commerce Department, the amount of foreign assets in the United States increased $314.6 billion in 1994, up from an increase of $230.7 billion in 1993. The decline in Japanese investment in the United States was more than made up by an increase in investment by other nations.
The current period should have been one of "spectacular economic advance, and instead we're gathering clouds," said Stoga, an economic consultant with Kissinger Associates in New York.
Much of the increase in the annual figure was attributed to an increase in the merchandise trade deficit, which grew from $132.6 billion in 1993 to $166.4 billion in 1994. But investment income fell significantly, from a surplus of $3.9 billion in 1993 to a deficit of $15.2 billion last year. It is the first time the United States has posted an investment deficit since the current series of records was begun in 1960.
The flow of investment dollars indicates that foreigners own more assets in this country than Americans own overseas.
The U.S. report came as Japan disclosed that its trade surplus grew in February, reflecting a surge in exports that demonstrate a quicker recovery than expected from the earthquake that struck the port city of Kobe in January. Economists had expected that the earthquake would cause a deeper disruption of the nation's export machinery.
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The U.S. current account balance, quarterly in billions of dollars:
Fourth quarter 1994: -$44.8
Source: Commerce Department