Current Account Deficit Continues to Grow, Now 5.7% of GDP

The current account balance continues to move further into deficit, but at a slower pace than anticipated. The first quarter deficit expanded by $192.6 billion which was lower than the consensus expectation of -$201B. The fourth quarter deficit was also revised lower to -$187.9B versus a prior estimate of -$195.8B. At this pace, the U.S. needs to attract over $2.1B per day in investments to fund the deficit. As a percentage of GDP, the deficit has grown to 5.7%, from 5.6% in the fourth quarter. For all of last year, the current account deficit was $811.5 billion, the largest on record. Just this month Fed Chairman Bernanke mentioned that the current account deficits and global imbalances remain "worrisome". The current account measure is the broadest indication of trade as it includes transfer payments and investment income.

An increase in investment income, of $4.5 billion, to the U.S. from overseas, helped reduce the size of the deficit as the actual trade deficit held steady between the 4Q06 and 1Q07. U.S. government payments abroad rose by $6B during the quarter.