The U.S. current account deficit surged to an unprecedented level in the third quarter of 2024, reaching $310.9 billion. This represents a 13.1% increase from the previous quarter and marks the highest deficit ever recorded, raising concerns about potential long-term economic risks. The primary drivers of this expansion were a significant increase in imports and a decline in income receipts.
The Commerce Department’s Bureau of Economic Analysis reported that the current account deficit, which reflects the balance of trade in goods, services, and investments, widened by $35.9 billion. This figure exceeded economists’ expectations, who had projected a deficit of $284.0 billion. Relative to the size of the economy, the deficit equated to 4.2% of gross domestic product (GDP), the highest since early 2022.
This substantial deficit raises concerns, particularly in light of the already large U.S. government budget deficit, which reached $1.833 trillion in fiscal year 2024. Economists warn that a persistently large current account deficit, coupled with a growing budget deficit, could pose significant long-term risks to the U.S. economy, potentially leading to a debt or currency crisis.
One contributing factor to the widening deficit is the diminishing primary income surplus, which traditionally helped offset the deficit. This income stream, derived from investments abroad, has declined recently, turning into a record deficit of $15.496 billion in the third quarter. This shift signifies a significant change in the U.S.’s international financial position.
A key driver of the expanding current account deficit was a $23.7 billion surge in imports of goods, reaching $837.2 billion, the highest level since the second quarter of 2022. This increase was primarily fueled by higher imports of capital goods, including computer components and electrical machinery. Consumer goods imports also rose, particularly in the pharmaceutical sector.
While exports increased by $13.6 billion to $530.0 billion, driven by capital goods like semiconductors and aircraft, this growth was insufficient to offset the surge in imports. Consequently, the goods trade deficit widened to $307.3 billion, its highest point since the second quarter of 2022.
The decline in primary income receipts, totaling $15.5 billion, further exacerbated the current account deficit. This decrease was mainly attributed to lower direct investment income and portfolio investment income, particularly from interest on long-term debt securities. Simultaneously, payments of primary income decreased, but the reduction was less significant than the drop in receipts.
Secondary income, which includes private and government transfers, also contributed to the widening deficit. While receipts of secondary income saw a slight increase, payments surged by $16.1 billion, primarily due to higher general government transfers for international cooperation. This resulted in a record deficit on secondary income of $61.871 billion.
The substantial widening of the U.S. current account deficit to a record high raises concerns about the country’s economic health. The combination of a growing trade deficit, declining investment income, and increasing government transfers paints a concerning picture. While the strong dollar currently mitigates the immediate impact of this deficit, the long-term consequences could be significant if the trend persists. The situation requires careful monitoring and potentially policy adjustments to address the underlying imbalances.
