WASHINGTON (AFP) — The US balance of payments deficit narrowed in the second quarter to 190.8 billion dollars from 197.1 billion in the first quarter, the Commerce Department reported Friday.
The US current account figure, roughly in line with analysts' forecasts, represented 5.5 percent of US economic output or gross domestic product.
For the first quarter, the current account deficit was revised up to 197.1 billion dollars or 5.8 percent of GDP.
The improvement in the current account deficit, the broadest measure of trade and income flows, suggested some easing of balance of payments -- the huge debt the United States owes the rest of the world.
The large deficit is a factor in the weak dollar, and a big debt to the rest of the world generally makes in harder to attract capital.
Paul Ferley, economist at RBC Capital Markets, said the deficit seems to be showing some improvement with a weak dollar helping boost US exports. This means trade may offset some other weak sectors of the economy such as housing.
"Strong global demand, along with the earlier depreciation of the US dollar, are boosting foreign demand for US goods," he said.
"Going forward, strength in foreign trade will be an important offset to the likely continued weakness in residential investment."
Robert Brusca at FAO Economics said the deficit remains a problem for the economy at these levels.
"While the US current account deficit has shrunk a bit relative to GDP it is still quite large and above the five percent trigger point may see as line of adverse demarcation for other countries," Brusca said. "The future for deficit contraction is still not clear."
The report showed the second quarter trade deficit on goods and services was almost the same as in the first quarter at 177.7 billion dollars.
The deficit on goods increased to 204.2 billion dollars, offset by a surplus in services of 26.5 billion.
It was higher investment income and lower US government spending abroad which accounted for the current account improvement the Commerce Department said.
Investment income increased to 190.3 billion dollars from 175.5 billion, mostly on interest and dividends.
Foreigners shifted to being net sellers of Treasury securities, with a decline of 7.6 billion dollars in the second quarter.
In non-Treasury securities, however, net foreign purchases rose to 235.1 billion dollars in the second quarter from 112.3 billion in the first.
The category of "unilateral current transfers" to foreigners fell to 22.5 billion dollars, down from 27.0 billion, because of lower US government grants.
Earlier this week, Federal Reserve chairman Ben Bernanke said the large US balance of payments deficit "cannot persist indefinitely" but for now is not an unduly large burden for the American economy.
He said the large US deficit to the rest of the world "cannot persist indefinitely because the ability of the United States to make debt service payments and the willingness of foreigners to hold US assets in their portfolios are both limited."
"Adjustment must eventually take place, and the process of adjustment will have both real and financial consequences," he added.
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