Current Account Deficit Widens, Net Foreign Security Purchases Decelerate

- The 2Q Current Account Balance widened to -$218.4 billion versus estimates of -$214.0 billion and -$213.2 billion the prior quarter.
- Net Foreign Security Purchases for July fell to $32.9 billion versus estimates of $70.0 billion and $75.1 billion in June.

BOTTOM LINE: The US current-account deficit widened more than forecast last quarter as the trade gap widened and more interest was paid to overseas investors, Bloomberg reported. US investors received less income on their holdings of international securities than foreigners received in the US, which helped widen the deficit. I expect the current account deficit to improve only modestly over the intermediate-term as falling commodity prices are mostly offset by the US economy’s relative strength versus other industrialized economies.

International investors slowed purchases of US securities in July as demand for Treasury notes fell after yields declined, Bloomberg reported. International purchases of US stocks rose $10.4 billion versus a $4 billion decline in June. UK holdings of US securities, which many believe are investors that funnel money from Middle East oil economies through British banks, declined by $11.2 billion. I expect foreign demand for US assets to increase going forward as commodities fall further, inflation decelerates and US relative economic strength increases.