U.S. international transactions in 2002

After slightly narrowing during the cyclical slowdown of 2001, the U.S. current account deficit widened in 2002, as it had over the previous decade. Two-thirds of the increase in the deficit last year was attributable to an increase in the deficit for trade in goods and services. In addition, net investment income receded as receipts from abroad declined more than payments on foreign investments in the United States. The record $503 billion U.S. current account deficit registered in 2002 was financed by continued high levels of private capital inflows and stepped-up foreign official purchases of U.S. assets. If economic activity picks up in the United States and in its major trading partners later this year, as most forecasters expect, the U.S. external deficit likely will widen as U.S. imports of goods and services rise by a greater amount than U.S. exports of goods and services. The decline in the dollar from early 2002 to date is unlikely to restrain the widening of the deficit by much, as it has been relatively small and its effects will be spread over a number of years.