The US economy witnessed a notable improvement in its external indicators, with the US current account deficit declining sharply during the third quarter of this year. This decline was primarily driven by the imposition of new tariffs on imports, coupled with a significant improvement in underlying revenues, reflecting fundamental changes in trade and investment patterns.
Details of the Bureau of Economic Analysis report
The U.S. Commerce Department’s Bureau of Economic Analysis reported today that the current account deficit—the broadest measure of the flow of goods, services, and investments into and out of the United States—shrank by $22.8 billion , or 9.2 percent, to $226.4 billion . This is the lowest deficit since the third quarter of 2023, indicating a slight improvement in the trade balance.
Import and export activity: goods and services
Detailed data revealed a mixed picture of trade activity, with goods imports declining by $5 billion to settle at $815.4 billion . This decrease is primarily attributed to a drop in consumer goods imports, which may reflect the impact of protectionist tariff policies or a slight slowdown in domestic demand. Conversely, gold imports saw a notable increase, and service imports rose by $3.1 billion to reach $225 billion.
On the export side, merchandise exports declined by $1.9 billion to $548 billion , impacted by fluctuations in gold prices, despite an increase in capital and consumer goods exports, indicating continued external demand for U.S. industrial products. The services sector, however, continued its strong performance, with exports increasing by $11.7 billion to reach $314.2 billion.
Revenue and trade deficit analysis
These moves helped narrow the goods trade deficit to $267.4 billion , compared to $270.4 billion in the previous quarter. Regarding financial flows, underlying income rose by $16.3 billion to $395.2 billion, driven by increased returns on direct investment, while payments increased by a smaller margin of $5.3 billion.
In a related context, secondary revenues decreased by $2 billion to $44.4 billion, and secondary revenue payments fell by $2.1 billion to $97.9 billion, as a result of a decrease in general government transfers.
Economic context and the importance of the index
The current account balance is a vital indicator of the health of the U.S. economy and its relationship with the global economy. Historically, the United States has run a deficit in this balance due to its position as the world's largest consumer of goods. However, a sharp reduction in the deficit may indicate the effectiveness of trade policies aimed at reducing reliance on imports, as well as the strength of the U.S. services sector, which consistently generates surpluses.
Economically, a smaller deficit typically supports the value of the local currency (the dollar) and reduces the need for foreign borrowing to finance consumption. This data comes at a time when investors and monetary policymakers are closely watching for any signals regarding the trajectory of inflation and economic growth, as an improved trade balance can positively impact US GDP.
