International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Saturday, June 29, 2019

U.S. International Transactions, First Quarter 2019 and Annual Update

Current-Account Balance

The U.S. current-account deficit decreased to $130.4 billion (preliminary) in the first quarter of 2019 from $143.9 billion (revised) in the fourth quarter of 2018, according to statistics released by the Bureau of Economic Analysis (BEA). The deficit was 2.5 percent of current-dollar gross domestic product in the first quarter, down from 2.8 percent in the fourth quarter.

Quarterly U.S. Current-Account and Component Balances

The $13.5 billion decrease in the current-account deficit mostly reflected a decrease in the deficit on goods that was partly offset by an increase in the deficit on secondary income.

Quarterly U.S. Current-Account Transactions

Current-Account Transactions (tables 1-5)

Exports of goods and services and income receipts

Exports of goods and services and income receipts increased $7.2 billion in the first quarter to $945.9 billion.

  • Primary income receipts increased $5.3 billion to $281.8 billion, primarily reflecting increases in direct investment income and in other investment income. A decrease in portfolio investment income partly offset the increases. For more information on direct investment income, see "Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts."
  • Goods exports increased $2.4 billion to $419.3 billion, primarily reflecting increases in automotive vehicles, parts, and engines, mostly passenger cars, and in foods, feeds, and beverages, mainly soybeans. A decrease in industrial supplies and materials partly offset the increases.
  • Services exports increased $2.3 billion to $209.1 billion, primarily reflecting an increase in travel (for all purposes including education), mostly personal travel.
  • Secondary income receipts decreased $2.8 billion to $35.6 billion, reflecting decreases in both private and U.S. government transfers.

Imports of goods and services and income payments

Imports of goods and services and income payments decreased $6.3 billion in the first quarter to $1.08 trillion.

  • Goods imports decreased $13.4 billion to $635.9 billion, primarily reflecting a decrease in industrial supplies and materials, mainly petroleum and products.
  • Primary income payments increased $4.3 billion to $220.7 billion, primarily reflecting an increase in direct investment income.

Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts

In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises consists of a portion that is repatriated to the parent company in the United States in the form of dividends and a portion that is reinvested in foreign affiliates. In response to the 2017 Tax Cuts and Jobs Act, which generally eliminated taxes on repatriated earnings, some U.S. multinational enterprises repatriated accumulated prior earnings of their foreign affiliates. In the first, second, and fourth quarters of 2018, the repatriation of dividends exceeded current-period earnings, resulting in negative values being recorded for reinvested earnings. In the first quarter of 2019, dividends were $100.2 billion while reinvested earnings were $40.2 billion (see table below). The reinvested earnings are also reflected in the net acquisition of direct investment assets in the financial account (table 6). For more information, see "How does the 2017 Tax Cuts and Jobs Act affect BEA’s business income statistics?" and "How are the international transactions accounts affected by an increase in direct investment dividend receipts?"

Direct Investment Earnings Receipts and Components
Direct Investment Earnings Receipts
Billions of dollars, seasonally adjusted
  2017 2018 2019
  Ir IIr IIIr IVr Ir IIr IIIr IVr Ip
Direct investment earnings 114.7 115.4 122.2 130.7 134.3 139.4 139.2 134.0 140.5
   Dividends 38.2 34.9 55.1 26.9 285.9 223.8 120.2 146.6 100.2
   Reinvested earnings 76.5 80.5 67.1 103.8 −151.6 −84.4 18.9 −12.6 40.2
p Preliminary | r Revised

Capital Account, Fourth Quarter (table 1)

There were no capital-account transactions recorded in the first quarter, following receipts of $2.7 billion in the fourth quarter. The fourth-quarter transactions reflected receipts from foreign insurance companies for losses resulting from the wildfires in California. For information on transactions associated with natural disasters, see "What are the effects of hurricanes and other disasters on the international economic accounts?"

Financial Account (tables 1, 6, 7, and 8)

Net U.S. borrowing measured by financial-account transactions was $37.8 billion in the first quarter, a decrease from net borrowing of $161.6 billion in the fourth quarter.

Financial assets

Net U.S. acquisition of financial assets excluding financial derivatives increased $4.3 billion in the first quarter to $151.6 billion.

  • Net U.S. acquisition of direct investment assets increased $33.8 billion to $59.5 billion. For more information on recent transactions in direct investment assets, see "Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts."
  • Net U.S. acquisition of other investment assets increased $9.9 billion to $151.6 billion, reflecting an increase in net U.S. provision of loans to foreign residents that was mostly offset by a decrease in net U.S acquisition of currency and deposits.
  • Net U.S. sales of portfolio investment assets increased $37.5 billion to $59.7 billion, reflecting net U.S. sales of foreign stocks following net U.S. purchases in the fourth quarter.

Liabilities

Net U.S. incurrence of liabilities excluding financial derivatives decreased $118.3 billion in the first quarter to $167.9 billion.

  • Net U.S. incurrence of other investment liabilities decreased $148.5 billion to $70.2 billion, mostly reflecting net foreign withdrawal of deposits in the United States following a net increase in deposits in the fourth quarter.
  • Net foreign sales of U.S. portfolio investment liabilities were $7.7 billion following net foreign purchases of $14.9 billion in the fourth quarter, reflecting relatively large and nearly offsetting changes in U.S. stock and debt security transactions from the fourth to the first quarter.
  • Net U.S. incurrence of direct investment liabilities increased $52.7 billion to $105.5 billion, primarily reflecting net U.S. incurrence of debt liabilities following net U.S. repayment in the fourth quarter.

Financial derivatives

Transactions in financial derivatives other than reserves reflected first-quarter net borrowing of $21.4 billion.

Statistical Discrepancy (table 1)

The statistical discrepancy was $92.6 billion in the first quarter following a statistical discrepancy of −$20.4 billion in the fourth quarter.

Updates to Fourth Quarter 2018 International Transactions Accounts Aggregatess
Billions of dollars, seasonally adjusted
  Preliminary estimate Revised estimate
Current-account balance −134.4 −143.9
    Goods balance −233.1 −232.3
    Services balance 66.1 61.2
    Primary-income balance 60.4 60.1
    Secondary-income balance −27.8 −32.8
Capital-account balance 8.9 2.7
Net lending (+)/borrowing (–) from financial-account transactions −168.3 −161.6
Statistical discrepancy −42.8 −20.4

https://lawprofessors.typepad.com/intfinlaw/2019/06/us-international-transactions-first-quarter-2019-and-annual-update.html

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