US current account deficit narrows in fourth quarter

WASHINGTON (Reuters) -The U.S. current account deficit contracted in the fourth quarter, but the improvement could be temporary as goods imports surged to a record high in January, driven by businesses preemptively buying foreign merchandise to avoid tariffs.

The Commerce Department’s Bureau of Economic Analysis said on Thursday the current account deficit, which measures the flow of goods, services and investments into and out of the country, narrowed $6.3 billion, or 2.0% to $303.9 billion.

Data for the third quarter was revised to show the deficit widening to a record high of $310.3 billion instead of $310.9 billion as previously reported. Economists polled by Reuters had forecast the current account deficit rising to $325.5 billion in the fourth quarter.

The improvement reflected the primary income balance swinging back into surplus.

The current account gap represented 4.1% of gross domestic product, down from 4.2% in the July-September quarter. The deficit peaked at 6.3% of GDP in the third quarter of 2006, when the housing market was starting to crumble.

The current account deficit widened $228.2 billion, or 25.2%, to a record $1.13 trillion in 2024. It represented 3.9% of GDP, the highest since 2022 and up from 3.3% in 2023.

The large current account deficit has little impact on the dollar for now, given its status as the reserve currency. But economists have cautioned that the widening gap and ballooning federal government budget deficit posed a risk to the greenback.

Imports of goods increased $5.7 billion to $845.3 billion in the fourth quarter, boosted by nonmonetary gold, which offset a sharp decline in capital goods. Imports of services increased $4.8 billion to $211.0 billion, lifted by personal travel.

Goods exports fell $10.8 billion to $519.2 billion, pulled down by declines in civilian aircraft, computer accessories, peripherals and parts as well as semiconductors.

There were also decreases in consumer exports like medicinal, dental and pharmaceutical products. Exports of services increased $7.7 billion to $287.1 billion amid rising charges for the use of intellectual property and travel.

The goods trade deficit widened to $326.1 billion, the highest level since the first quarter of 2022, from $309.6 billion in the July-September quarter.

The goods trade deficit hit an all-time high of $329.5 billion in January as businesses front-loaded imports in anticipation of broad duties from President Donald Trump’s administration. Trump has announced a raft of tariffs, though some duties were then delayed until April.