Record-High Current Account Deficit Sparks Concerns
The United States’ current account deficit has reached an unprecedented high, sparking warnings from economists about the potential risks to the country’s economy. According to the Commerce Department’s Bureau of Economic Analysis, the deficit surged 13.1% to $310.9 billion in the third quarter, exceeding forecasts.
Imports Drive Deficit Growth
A significant contributor to the widening deficit was the substantial increase in imports, which jumped $23.7 billion to a record $837.2 billion. This was largely driven by capital goods, such as computer accessories and electric-generating machinery, as well as consumer goods like medicinal and pharmaceutical products.
Exports Fail to Keep Pace
Meanwhile, exports rose by a more modest $13.6 billion to $530.0 billion, led by capital goods like semiconductors and civilian aircraft. The resulting goods trade deficit ballooned to $307.3 billion, the largest since the second quarter of 2022.
Income Receipts Decline
The primary income surplus, which had previously helped offset the deficit, has swung into deficit in recent quarters. Receipts of primary income fell $15.5 billion to $345.7 billion, primarily due to a decrease in direct investment income. This marks a record $15.496 billion shortfall in the third quarter.
Twin Deficits Pose Long-Term Risks
Economists are sounding the alarm about the twin threats of the government budget deficit and the external deficit. The U.S. budget deficit grew to $1.833 trillion for fiscal 2024, up 8% from the previous year. Paul Ashworth, chief North America economist at Capital Economics, warns that these deficits present a long-term risk of developing into a full-blown debt or currency crisis.
Dollar’s Reserve Status May Not Last
While the large current account deficit has little immediate impact on the dollar, economists caution that this could change if the trend continues. The dollar’s status as the reserve currency may not be enough to shield it from the consequences of sustained deficits.
A Call to Action
As the U.S. grapples with these twin deficits, it’s essential to address the underlying issues driving these imbalances. Failure to do so could have far-reaching consequences for the economy and the dollar’s value.
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