U.S. Balance of Payments Weakened Prior to Midyear

August 15, 2011

Treasury capital flow data released earlier paint a weaker U.S. balance of payments.  Foreigners sold $11.5 billion of U.S. long-term securities in June after buying $44.6 billion in May.  Net purchases of U.S. securities averaged $26.0 billion per month in the second quarter, down from $53.9 billion per month in 1Q, and the first-half pace of monthly buying, $40.0 billion per month, was less than the $75.9 billion per month pace in full-2010.

Net of U.S. buying of foreign securities, the long-term capital inflow in June was only $3.7 billion, down from $24.2 billion in May.  The second quarter long-term inflow of $58.5 billion was well below the $106.5 billion inflow in 1Q, and the average monthly inflow in the first half of 2011 of $27.5 billion was less than half of the 2010 pace of $65.2 billion per month.

Including short-term as well as long-term securities transactions, June had a $29.5 billion outflow on top of a $48.8 billion outflow in May.  There was an outflow of $2.3 billion per month in 2Q versus a monthly inflow of $80.9 billion in 1Q11.

The goods and services trade deficit widened from $43.6 billion in April to $50.8 billion in May and $53.1 billion in June.  That works out to a $49.2 billion per month deficit in the second quarter, greater than the first-quarter average shortfall of $46.8 billion and a monthly average deficit in 2010 of just $41.7 billion.

These negative trends may reflect mounting concern about the security of investments in U.S. paper assets and seemingly will constrain the dollar’s upside potential over the balance of 2011.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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