Current Account Balance

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The following is excerpted from a news release from the Bureau Of Economic Analysis on July 7, 2003. The excerpt includes a description of changes in the components of the U.S. current account balance for the first quarter of 2003:

"The U.S. current-account deficit-the combined balances on trade in goods and services, income, and net unilateral current transfers-increased to $136.1 billion in the first quarter of 2003 from $128.6 billion (revised from $136.9 billion) in the fourth quarter of 2002. The deficit on goods accounted for half of the increase. In addition, the surplus on services decreased, net outflows for unilateral current transfers increased, and the surplus on income fell. In the financial account, net recorded financial in-flows--net acquisitions by foreign residents of assets in the United States less net acquisitions by U.S. residents of assets abroad--decreased to $112.8 billion in the first quarter from $152.5 billion in the fourth. Financial outflows for U.S.-owned assets abroad increased, and financial inflows for foreign-owned assets in the United States decreased. The following are highlights for the first quarter of 2003:

• Goods imports increased more than goods exports. Petroleum and petroleum products accounted for three-fourths of the increase in goods imports.
• Travel and passenger fare receipts decreased sharply as a result of a decline in the number of foreign travelers to the United States. Travel and passenger fare payments also decreased, but not as sharply.
• There were net foreign sales of U.S. stocks and of U.S. federally sponsored agency bonds for the first time in several years.
• Net U.S. purchases of foreign stocks were boosted by an increase in merger-related exchanges of stock. The statistical discrepancy-errors and omissions in recorded transactions-was a positive $23.7 billion in the first quarter."

http://www.bea.doc.gov/bea/ARTICLES/2003/07July/0703ITAQuarterly.pdf

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The following perspective is an excerpt from a paper presented at the Globalization seminar of the Conference of European Statisticians on June 12, 2003 in Geneva, Switzerland. It was written and presented by 2 economists from the U.S. Bureau of Economic Analysis, J. Steven Langefeld and Ralph Kozlow. They discuss the effects of multinational corporations on the Balance of Payments accounts.

"Globalization has placed new demands on statistical agencies to provide the information necessary to inform policy in today's increasingly interdependent world economy. This globalization has manifested itself in the interdependence of financial markets, the increasing role of multinational corporations (MNC's), the transfer of technology, the increasing dependence of domestic markets on foreign trade, and the necessary interdependence of monetary, fiscal, and regulatory policy. Indeed, this interdependence in policy has led to increased demands for harmonization in world statistical standards. These include work to harmonize, standardize, and update the System of National Accounts (SNA) and the Balance of Payments Manual (BPM); the development of international data dissemination standards; and development and issuance of a series of handbooks ranging from International Trade in Services to Tourism.

Much of this work has involved filling gaps in coverage required by changes in the economy using conventional data collection methods and the existing structure of the national accounts. Providing the information needed for evaluating the economic impact of MNC's, however, normally requires the development of direct surveys of companies that capture data on the overseas activities of their foreign affiliates, and the development and/or use of alternative accounting structures. Despite the cost to statistical agencies and the burden imposed on business respondents by these surveys and alternative structures, the sheer size, growth, and impact of multinational companies have motivated a number of countries to develop, or consider developing, such data.

A leading example is the United States, which is both the world's largest direct investor and the host of the world's largest stock of inward direct investments. At yearend 2001, the value of the U.S. direct investment position abroad was $1.6 trillion, and the value of the foreign direct investment position in the United States was $1.5 trillion. In 2000, U.S. exports and imports of goods associated with MNC's headquartered or investing in the United States totaled nearly $1.3 trillion and accounted for over half of U.S. imports and nearly three-fourths of U.S. exports. U.S. parent companies, their foreign affiliates, and U.S. affiliates of foreign companies together employed about 37 million people in the United States and abroad in that year (28 million were in the United States, of a total workforce of about 130 million). The combined gross product of U.S. parents and U.S. affiliates accounted for one-fourth of the U.S. gross domestic product.

Although some countries do not maintain data on direct investment, recent estimates by the United Nations illustrate the significance of MNC's worldwide. It estimates worldwide sales by foreign affiliates in 2001 at $19 trillion, or more than double the size of world exports in 2001. (In comparison, in 1990, sales by foreign affiliates were only about 25 percent larger than world exports.) Over the period 1990-2001, the world stock of outward direct investment increased an average of 13 percent per year, from $1.7 trillion to $6.6 trillion, compared to an annual growth rate of world current-dollar GDP of 3.5 percent. In 2001, foreign affiliates accounted for one-third of world exports."

http://www.bea.doc.gov/bea/papers/Globalization.pdf

The quote excerpted below is from a speech by Federal Reserve Chairman Alan Greenspan at the 2002 National Summit On Retirement Savings sponsored by the Department Of Labor in Washington, DC on February 28, 2002. In it he discusses the role of overseas capital in our current account balance:

"During the past six years, about 40 percent of the total increase in our capital stock in effect has been financed, on net, by saving from abroad. This situation is reflected in our ongoing current account deficit, which, by definition, is a measure of our net investment in domestic plant and equipment financed with foreign funds, both debt and equity. But this deficit is also a measure of the increase in the level of net claims, primarily debt claims, that foreigners have on our assets. As the stock of such claims grows, an
ever larger flow of interest payments must be provided to the foreign suppliers of this capital. Countries that have gone down this path invariably have run into trouble, and so would we. Eventually, the current account deficit will have to be restrained. The nation's economic potential will be brighter if that comes about through an increase in domestic saving rather than a reduction in domestic investment."

http://www.federalreserve.gov/boarddocs/speeches/2002/20020228/default.htm

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The quote excerpted below is from a speech by Mervyn King, Deputy Governor of the Bank of England, to the Plymouth Chamber of Commerce and Industry's 187th Anniversary Banquet, 14 April 2000. In this speech Mr. King discusses current account balances and international trade:

" Sustained current account deficits can reflect profitable investment opportunities that exceed the supply of domestic savings so that it is necessary to borrow from abroad. And the most popular explanation of the recent rapid growth in domestic demand, especially in the US, is as the consequence of a rise in productivity growth, and investment opportunities, reflecting the so-called "new economy". It has been pointed out by several economists, including Alan Greenspan and my colleague John Vickers, that an increase in trend productivity growth might increase demand by more than it raised supply initially, as firms invest in new technology and consumers anticipate higher future incomes and spend today out of this revised estimate of their "permanent" income. Hence new information technologies, because they raise potential future output in the economy, would add to demand today. The immediate consequence of such an increase in demand relative to output is a current account deficit and inflationary pressures."

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The commentary excerpted below was written by Harlan J. King for the International Transactions section of the Bureau of Economic Analysis' Survey On Current Business. It was published in the January, 2000 edition:

"The deficit on goods and services increased to $73.8 billion in the third quarter from $65.1 billion in the second. The increase was accounted for by an increase in the deficit on goods, to $92.1 billion from $84.4 billion, and by a decrease in the surplus on services, to $18.3 billion from $19.3 billion.

"Goods.-The deficit on goods increased $7.7 billion, to $92.1 billion, in the third quarter. Imports increased twice as much as exports.

"Exports.-Exports increased $7.7 billion, or 5 percent, to $173.6 billion in the third quarter (table C). Quantities increased 4 percent, and prices rose 1 percent./2/ Nearly all the increase in value was attributable to increased exports of nonagricultural products.

"Nonagricultural exports increased $7.0 billion, or 5 percent, to $160.6 billion; quantities increased 4 percent, and prices increased 1 percent. In value, the increase was mostly accounted for by increases in capital goods and in nonagricultural industrial supplies and materials; however, exports of all major commodity categories rose. Capital goods, excluding civilian aircraft, engines, and parts, rose $3.5 billion, or 6 percent, to $66.2 billion. Sales of many high-technology products were particularly strong. Reflecting strong global demand, exports of semiconductors grew for the fifth consecutive quarter since their slump in late 1997 and early 1998. Exports of telecommunications equipment and of computers, peripherals, and parts increased. Civilian aircraft, engines, and parts rebounded, increasing $1.3 billion; an increase in aircraft deliveries to recovering economies in Asia more than offset a continued decrease in deliveries to Japan and Western Europe. Exports of nonagricultural industrial supplies and materials were boosted by sharply higher shipments of chemicals and non-monetary gold.

"Agricultural exports increased $0.7 billion, or 5 percent, to $12.9 billion in the third quarter; quantities increased 6 percent, and prices decreased 1 percent. In value, nearly all major commodities increased; nearly one-half of the increase was accounted for by soybean exports, mainly to China. "