How the U.S. Current Account Deficit was Funded Last Quarter
December 18, 2012
The U.S. current account deficit dropped $10.6 billion in the third quarter. Although the decline was a bit less than analyst forecasts, it represented a 0.3 percentage point (ppt) reduction from the second quarter and a drop of 0.8 ppts from the first quarter of 2012. All financing for the current account gap in 3Q and then some was provided by $143.6 billion of officials capital inflows. In the table below, that sum also captures the statistical discrepancy in measuring the balance of payments. The high-quality component of private capital movements generated a net capital inflow last quarter of $30.5 billion, providing additional lift to the dollar, which on a trade-weighted basis averaged 1.4% more than in the second quarter.
blns of $ | 3Q11 | 4Q11 | 1Q12 | 2Q12 | 3Q12 |
C/A | -108.2 | -118.7 | -133.6 | -118.1 | -107.5 |
% of GDP | -2.9 | -3.1 | -3.5 | -3.0 | -2.7 |
Official | +14.7 | +105.4 | -119.6 | +93.1 | +143.6 |
Private | +93.5 | +224.1 | +14.1 | +25.0 | -36.1 |
Dir & Port | +53.3 | +48.1 | -42.8 | -45.9 | +30.5 |
T-Wt USD | 69.8 | 72.4 | 73.1 | 73.1 | 74.1 |
A second table below focuses on the eight components of direct investment and portfolio investment. Changes in each component between 1Q12 and 2Q12 are noted in the right-most column, where a positively signed change indicates an increased net inflow, a reduced net outflow, or a swing from a net outflow to a net inflow. The eight elements of long-term capital are U.S. direct investment abroad, foreign direct investment in the United States, U.S. buying of foreign bonds, U.S. purchases of foreign equities, foreign buying of Treasuries, foreign purchases of U.S. corporate bonds, foreign buying of U.S. agency bonds and foreign purchases of U.S. stocks.
2Q12 | 3Q12 | Change | |
U.S. DI Abroad | +63.3 | +101.4 | -38.1 |
Fgn DI in U.S. | +48.0 | +34.2 | -13.8 |
U.S. + Foreign Bonds | -27.5 | -0.1 | -27.4 |
U.S. + Fgn Stocks | +21.0 | -2.1 | -23.1 |
Fgn + Treasuries | +6.0 | +47.9 | +41.9 |
Fgn + U.S. Corporates | -38.2 | -6.1 | +32.1 |
Fgn + U.S. Agencies | +3.6 | +16.4 | +12.8 |
Fgn + U.S. Equities | -8.5 | +37.4 | +45.9 |
This second table is related in the following manner to the first one: the sum of the quarter-to-quarter changes in the right-most column below equals the $76.4 billion favorable swing in net direct investment and portfolio investment from an outflow of $45.9 billion in 2Q12 to an inflow of $30.5 billion in the third quarter of this year. These figures can be found in the two right-most columns of the row labeled “direct and portfolio investment” in the first table. Five of the six elements of portfolio investment — the exception being lessening U.S. sales of foreign equities — provided greater dollar support in the third quarter than they had in the second quarter. U.S. direct investment abroad and foreign direct investment in the United States, which are depicted in the top two rows of the above table, resulted in larger net outflows and therefore mitigated the size of the overall direct investment plus portfolio investment net capital inflow.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.