Is the trade gap widening?
*Bloomberg, by Joe Richter, September 18, 2006
U.S. Current-Account Gap Widened to $218.4 Billion
“The U.S. current-account deficit widened more than forecast last quarter to the second-largest on record as the trade gap expanded and more interest was paid to overseas investors, a government report showed.
The $218.4 billion shortfall in the current account, the broadest measure of trade because it includes transfer payments and investment income, followed a revised $213.2 billion first- quarter gap that was larger than initially reported, the Commerce Department said today in Washington.
The growing deficit poses a risk to the economy should investors sour on U.S. assets and diversify to other countries because it may weaken the dollar and push interest rates higher. Growing economies abroad and declining costs of imported energy may help stabilize the deficit and keep that from happening.
“Barring a growth miracle outside the U.S., the current account deficit seems destined to remain quite large,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “In spite of gloom-and-doom scenarios that have been voiced for years, the U.S. has had no problems attracting the foreign capital needed.”
The U.S. needs to attract about $2.4 billion a day to fund the gap, and any shortfall would undermine the value of the dollar. The gap amounted to 6.6 percent of the economy, the same as in the first quarter. It was a record 7 percent of gross domestic product in the final three months of 2005.”
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