The U.S. current account deficit hit 14-year high in Q1

The U.S. current account deficit hit 14-year high in Q1

The U.S. current account deficit rose to a 14-year high in the first quarter. Remarkably, an acceleration in economic growth drew in imports. The gap could remain wide as the U.S. is leading the global economic recovery from the coronavirus pandemic.

On Wednesday, the Commerce Department announced the current account deficit increased by 11.8% to $195.7 billion last quarter. Notably, it measures the flow of goods, services, and investments into and out of the country.

Data for the fourth quarter showed a $175.1 billion gap instead of $188.5 billion, as previously reported.

Remarkably, the current account gap represented 2.5% of gross domestic product last quarter. It was up from 3.3% in the fourth quarter and the largest unseen since the fourth quarter of 2008.

Moreover, the deficit remains below a high of 6.3% of GDP in the fourth quarter of 2005. That’s because the U.S. is a net exporter of crude oil and fuel.

The United States’ economy increased at a 6.4% annualized rate in the first quarter. Growth is likely to reach 7% this year. Remarkably, that would be the fastest growth unseen since 1984 and would follow a 3.5% contraction last year, the worst performance in 74 years.

Moreover, imports of goods boosted by $39.9 billion to a record $677.0 billion in the first quarter. Coronavirus vaccinations, along with trillions of dollars in pandemic relief, are allowing for a greater reopening of the economy.

Imports of services gained $1.8 billion to $261.7 billion, raised by an increase in direct investment income, mostly earnings.

U.S. factory activity increased to a record high in June

A measure of U.S. factory activity increased to a record high in June. But manufacturers are still struggling to secure raw materials and qualified employees. Remarkably, it is substantially boosting prices for both businesses and consumers.

Data firm IHS Markit announced today that its flash U.S. manufacturing PMI surged to a reading of 62.6 this month. Notably, that was the highest since the survey was expanded to cover all manufacturing industries in October 2009. In May, the final reading was 62.1.

Remarkably, a reading above 50 shows growth in manufacturing, accounting for 11.9% of the U.S. economy.

The strength in manufacturing raises economists’ expectations for double-digit growth in the second quarter. Moreover, demand shifted to goods from services as the coronavirus pandemic kept Americans at home. It remains robust even as vaccinations and trillions of dollars in relief money from the government allow the economy to reopen more broadly.

However, supply is struggling to cope with the demand rise, leading to huge backlogs of uncompleted work and sky-rocketing prices for raw materials and finished products, which are feeding into higher inflation.

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