The U.S. current account deficit fell almost 17% to $101.5 billion in the second quarter. A smaller trade deficit was the biggest reason for the decline.
The numbers: The U.S. current-account deficit fell 17% in the second quarter and touched the lowest level in three years.
The deficit dropped to $101.5 billion from a revised $121.7 billion in the first quarter, the government said Wednesday. The current account includes not just trade but also investments made abroad as well as personal transfers.
What happened: The U.S. recorded a much smaller trade deficit in goods and a bigger surplus in services such as banking and tourism.
Exports of U.S.-produced oil, industrial supplies and agricultural goods, mainly soybeans, climbed sharply in the spring. In the case of soybeans, American sellers and foreign buyers sought to strike deals before Chinese retaliatory tariffs took effect.
The Trump tax cuts, meanwhile, have spurred companies to shift billions of dollars in earnings from affiliates abroad to their parent companies in the U.S.
For example, reinvested earnings fell $166.8 billion in the first quarter and an additional $42.7 billion in the second quarter. Those big drops are linked to the repatriation of profits held abroad to back home.
The current account reveals if a country is a net lender or debtor. The current account deficit was 2% of GDP in the second quarter. That’s down from 2.4% in the first quarter and well below a peak of 6.3% in 2005.
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Big picture: The U.S. has run large deficits in the current account for years in both good times and bad without much affect on the economy.
By and large it reflects chronic deficits in trade, which are a drag on gross domestic product. While President Trump vows to slash huge trade deficits, the U.S. is on track to post the biggest annual gap in a decade despite the imposition of widespread tariffs on foreign goods.
Read: U.S. trade deficit soars nearly 10% on record imports
Also Read: China retaliates with tariffs on $60 billion of U.S. goods
Market reaction: The Dow Jones Industrial Average DJIA, +0.71% and the S&P 500 SPX, +0.54% were set to open lower in Wednesday trades, though the market has returned close to record highs.
The 10-year Treasury yield TMUBMUSD10Y, -0.12% has moved above 3% again with the Federal Reserve preparing to raise U.S. interest rates at the end of September.