US current account deficit shrinks in 2nd quarter as oil prices fall, exports rise

WASHINGTON – Cheaper oil imports and greater U.S. exports lowered the deficit in the broadest measure of U.S. trade in the April-June quarter.

The Commerce Department said Thursday that the current account deficit shrank to $109.7 billion, down from $118.3 billion in the first quarter. The current account tracks not only trade in goods and services but also investment flows.

Falling oil prices helped reduce the value of oil imports, lowering the trade deficit to $130 billion from $134.3 billion in the first quarter. Exports of goods and services increased to $564.7 billion from $561.7 billion.

The trade gap was a big drag on growth in the first three months of the year, when the economy barely expanded. But the smaller deficit in the second quarter contributed to a much faster expansion.

The economy grew at a 3.7 per cent annual pace in the April-June quarter, after growth of just 0.6 per cent in the first three months of the year.

But the improvement in the current account deficit may not last. U.S. exporters have seen their overseas sales struggle as economies from Europe to China have slowed. The strong dollar is another challenge. It has increased about 14 per cent in value in the past year compared with overseas currencies. That makes U.S. goods more expensive overseas, and imports cheaper in the U.S.

The Federal Reserve is keeping a close watch on slowing global growth as it finishes a two-day meeting Thursday. It may decide to raise the short-term interest rate it controls for the first time in nine years. But many analysts believe that global financial turmoil, spurred largely by weaker growth in China, may cause them to hold off until a future meeting.

U.S. investors and companies also earned more on their foreign holdings in the second quarter, the government said. The surplus on investment income rose to $50.6 billion in the second quarter from $49.7 billion in the first.