EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, Wednesday, June 20, 2018
U.S. International Transactions:
First Quarter 2018 and Annual Update
First Quarter 2018 and Annual Update
Current-Account Balance The U.S. current-account deficit increased to $124.1 billion (preliminary) in the first quarter of 2018 from $116.1 billion (revised) in the fourth quarter of 2017, according to statistics released by the Bureau of Economic Analysis (BEA). The deficit was 2.5 percent of current-dollar gross domestic product (GDP) in the first quarter, up from 2.4 percent in the fourth quarter.
The $8.0 billion increase in the current-account deficit reflected an $8.1 billion increase in the deficit on goods and relatively small and nearly offsetting changes in the balances on services, primary income, and secondary income.
Current-Account Transactions (tables 1-5) Exports of goods and services and income receipts Exports of goods and services and income receipts increased $23.0 billion in the first quarter to $913.4 billion. * Primary income receipts increased $9.8 billion to $258.8 billion, reflecting increases in direct investment income, portfolio investment income, and other investment income. For more information on direct investment income, see the box “Effects of the 2017 Tax Cuts and Jobs Act on Components of Direct Investment.” * Goods exports increased $9.5 billion to $411.4 billion, mostly reflecting increases in automotive vehicles, parts, and engines, in consumer goods, primarily jewelry and collectibles, and in nonmonetary gold. Imports of goods and services and income payments Imports of goods and services and income payments increased $30.9 billion in the first quarter to $1,037.5 billion. * Goods imports increased $17.6 billion to $631.9 billion, mostly reflecting increases in industrial supplies and materials, primarily petroleum and products, and in consumer goods, primarily medicinal, dental, and pharmaceutical products. * Primary income payments increased $10.2 billion to $196.8 billion, reflecting increases in direct investment income, portfolio investment income, and other investment income. BOX.___________________________________________________________________________________________ Effects of the 2017 Tax Cuts and Jobs Act on Components of Direct Investment In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises in a period typically 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. At times, repatriation of dividends exceeds current-period earnings, resulting in negative values being recorded for reinvested earnings. In the first quarter of 2018, direct investment earnings were $130.6 billion, reflecting dividends and withdrawals of $305.6 billion and reinvested earnings of -$175.0 billion (table 4). The large magnitudes for dividends and withdrawals and the negative reinvested earnings reflect the repatriation of accumulated earnings by foreign affiliates of U.S. multinational enterprises to their parent companies in the United States in response to the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA requires U.S. parent companies to pay a one-time tax on their accumulated earnings held abroad, but generally eliminates taxes on repatriated earnings. The negative reinvested earnings of -$175.0 billion reflect the fact that dividends exceeded earnings in the first quarter and U.S parent companies withdrew accumulated prior earnings from their foreign affiliates. The negative reinvested earnings are also reflected in the net acquisition of direct investment assets in the financial account, which was -$119.7 billion* in the first quarter of 2018 (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?” *This number was originally reported as -$119.6 billion; it was corrected on June 28, 2018.
_______________________________________________________________________________________________ Financial Account (tables 1, 6, 7, and 8) Net U.S. borrowing measured by financial-account transactions was $180.6 billion in the first quarter, an increase from net borrowing of $31.3 billion in the fourth quarter. Financial assets Net U.S. acquisition of financial assets excluding financial derivatives increased $127.6 billion in the first quarter to $254.7 billion. * Net U.S. acquisition of portfolio investment assets increased $277.2 billion to $365.5 billion, reflecting net U.S. purchases of foreign equity and investment fund shares following net sales in the fourth quarter. * Net U.S. acquisition of other investment assets was $8.9 billion following net liquidation of $50.9 billion in the fourth quarter. This change mostly reflected net U.S. provision of loans to foreigners following net foreign repayment in the fourth quarter. * Net U.S. withdrawal of direct investment assets was $119.7 billion following net U.S. acquisition of $91.3 billion in the fourth quarter. This change partly offset the changes in portfolio investment assets and other investment assets. The net withdrawal of direct investment assets reflected U.S. parent repatriation of previously reinvested earnings in response to the TCJA. For more information, see the box “Effects of the 2017 Tax Cuts and Jobs Act on Components of Direct Investment.” Liabilities Net U.S. incurrence of liabilities excluding financial derivatives increased $304.9 billion in the first quarter to $464.1 billion. * Net U.S. incurrence of portfolio investment liabilities increased $210.5 billion to $292.1 billion, mostly reflecting net foreign purchases of U.S. equity and investment fund shares following net foreign sales in the fourth quarter. * Net U.S. incurrence of direct investment liabilities increased $59.1 billion to $97.3 billion, mostly reflecting net U.S. incurrence of debt instrument liabilities following net repayment in the fourth quarter. * Net U.S. incurrence of other investment liabilities increased $35.3 billion to $74.6 billion, reflecting partly offsetting changes in transactions in loan and deposit liabilities. Net U.S. incurrence of loan liabilities in the first quarter followed net repayment in the fourth quarter. Net foreign withdrawal of deposits in the United States followed net incurrence in the fourth quarter. Financial derivatives Transactions in financial derivatives other than reserves reflected first-quarter net lending of $28.7 billion, a $27.9 billion increase from the fourth quarter. Statistical Discrepancy (table 1) The statistical discrepancy was -$56.5 billion in the first quarter following a statistical discrepancy of $84.9 billion in the fourth quarter. Updates to Fourth Quarter 2017 International Transactions Accounts Aggregates Billions of dollars, seasonally adjusted Preliminary estimate Revised estimate Current-account balance -128.2 -116.1 Goods balance -214.3 -212.4 Services balance 60.4 64.6 Primary-income balance 57.2 62.4 Secondary-income balance -31.5 -30.7 Net lending (+)/borrowing (-) from financial-account transactions -29.8 -31.3 Statistical discrepancy 98.4 84.9 Annual Update of the International Transactions Accounts (table 9) The statistics in this release reflect the annual update of the U.S. international transactions accounts. With this update, BEA has incorporated improved estimation methodologies, newly available and revised source data, and updated seasonal adjustments. Key changes to the statistics are summarized below and in table 9. * The revised statistics on the international transactions accounts incorporate newly available and revised source data for 2014–2017 and for additional years for selected components as described below. * Revised statistics on exports of goods reflect an improved method for estimating exports under the U.S. Foreign Military Sales (FMS) program. Beginning with statistics for 2010, BEA is no longer replacing FMS exports in the U.S. Census Bureau’s merchandise trade statistics with data from the U.S. Department of Defense. This change in methodology also affects the financial account because the value of exports of FMS goods is recorded under general government trade credits and advances as a reduction in the liabilities of the U.S. government. U.S. government liabilities, which reflect pre-payments made by foreign purchasers, are reduced when the foreign purchaser takes ownership of the goods. * Revised statistics on exports of government goods and services reflect an improved method for estimating exports of goods and services under U.S. military grant programs. BEA has identified that cash grants disbursed through the Afghanistan Security Forces Fund program are included in the source data for government goods and services and has removed them beginning with statistics for 2010. These cash grants are captured in BEA’s source data on U.S. government grants and recorded as a debit in secondary income payments in the current account and as a credit in other investment liabilities in the financial account. No adjustment to other investment is necessary because these cash grants, while not identifiable, are captured in BEA’s source data on financial transactions. * Revised statistics on direct investment positions, transactions in financial assets and liabilities, and related income receipts and payments for 2014–2017 incorporate the results of BEA’s 2014 Benchmark Survey of U.S. Direct Investment Abroad. This survey collects data on the U.S. and foreign operations of all U.S. investors that own 10 percent or more of a foreign business enterprise. For more information, see “Activities of U.S. Multinational Enterprises in the United States and Abroad: Preliminary Results From the 2014 Benchmark Survey” in the December 2016 issue of the Survey of Current Business. * Revised statistics on exports of travel services for 2015–2017 incorporate adjustments to address an undercount of foreign visitors to the United States in BEA’s source data. For more information, see “How did the International Trade Administration’s suspension of I-94 arrivals data releases affect BEA’s statistics?” Newly Available and Revised Source Data: Key Providers and Years Affected BEA: * Benchmark Survey of U.S. Direct Investment Abroad (2014–2017) * Quarterly international services surveys (2015–2017) * Quarterly direct investment surveys (2015–2017) * Annual direct investment surveys (2015–2017) U.S. Census Bureau: * Foreign Military Sales (2010-2017) * Revised source data for Census-basis goods (2015–2017) U.S. Customs and Border Protection * BEA adjustments to source data on country of residency of visitors to the United States (2015–2017) * Number of U.S. citizens traveling abroad (2016–2017) U.S. Department of the Treasury: * Annual and benchmark surveys from the Treasury International Capital system (2016–2017) A more detailed discussion of the new estimation methodologies and other changes appears in “Preview of the 2018 Annual Update of the International Economic Accounts” in the May 2018 issue of the Survey of Current Business. Additional information on the updates to the U.S. international transactions accounts and the U.S. international investment position accounts will be provided in the July issue of the Survey of Current Business. Next release: September 19, 2018 at 8:30 A.M. EDT U.S. International Transactions, Second Quarter 2018 Additional Information Resources * Stay informed about BEA developments by reading the BEA blog, signing up for BEA’s email subscription service, or following BEA on Twitter @BEA_News. * Historical time series for these estimates can be accessed in BEA’s interactive data application. * Access BEA data by registering for BEA’s data application programming interface (API). * For more on BEA’s statistics, see our monthly online journal, the Survey of Current Business. * BEA's news release schedule. * More information on these international transactions statistics will be provided next month in the Survey of Current Business. * More information on the international transactions accounts (ITAs) and a description of the estimation methods used to compile them is provided in U.S. International Economic Accounts: Concepts and Methods. Definitions The current account consists of transactions between U.S. residents and nonresidents in goods, services, primary income, and secondary income. Goods are physical items with ownership rights that can be exchanged among institutional units through transactions. Services transactions consist of transactions arising from productive activities that change the condition of the consumer or that facilitate the exchange of products and financial assets. Primary income transactions include investment income and compensation of employees. Investment income is the return on holdings of financial assets and includes direct investment income, portfolio investment income, other investment income, and income on reserve assets. Compensation of employees is income for the contribution of labor inputs to the production process. Secondary income consists of current transfers between residents and nonresidents. Unlike an exchange, a transfer is a transaction in which a good, service, or asset is provided without a corresponding return of economic value. Secondary income receipts and payments include U.S. government and private transfers, such as U.S. government grants and pensions, fines and penalties, withholding taxes, personal transfers (remittances), insurance-related transfers, and other current transfers. The capital account consists of capital transfers between residents and nonresidents and the cross-border acquisition and disposal of nonproduced nonfinancial assets. Capital transfers include debt forgiveness and certain disaster-related nonlife insurance claims. Nonproduced nonfinancial assets include natural resources and contracts, leases, and licenses. Capital- account transactions are distinguished from current-account transactions in that capital- account transactions result in a change in the assets of one or both parties to the transaction without affecting the income or savings of either party. The financial account consists of transactions between U.S. residents and nonresidents for direct investment, portfolio investment, other investment, reserves, and financial derivative other than reserves. Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise resident in another economy. Ownership or control of 10 percent or more of the nonresident entity’s voting securities is the threshold for separating direct investment from other types of investment. Direct-investment transactions include transactions in equity (including reinvestment of earnings) and debt instruments. Portfolio investment transactions consist of cross-border transactions involving equity and investment fund shares and debt securities, excluding those included in direct investment or reserve assets. Other investment is a residual category that includes cross-border financial instruments other than those included in direct investment, portfolio investment, financial derivatives, and reserve assets. Other-investment transactions consist of transactions in currency and deposits, loans, insurance technical reserves, trade credit and advances, and, for liabilities, special drawing rights allocations. Reserve assets are those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate, and for other related purposes such as maintaining confidence in the currency and the economy and serving as a basis for foreign borrowing. The major published components are monetary gold, International Monetary Fund (IMF) special drawing rights (SDRs), reserve position in the IMF, and other reserve assets. Financial derivatives other than reserves consist of financial contracts that are linked to underlying financial instruments, commodities, or indicators. Transactions in financial derivatives consist of U.S. cash receipts and payments arising from the sale, purchase, periodic settlement, or final settlement of financial derivatives contracts. Transactions in financial derivatives are only available as a net value equal to transactions for assets less transactions for liabilities. A positive value represents net cash payments by U.S. residents to foreign residents from settlements of derivatives contracts (net lending) and a negative value represents net U.S. cash receipts (net borrowing). The statistical discrepancy is the difference between net acquisition of assets and net incurrence of liabilities in the financial account (including financial derivatives) less the difference between total credits and total debits recorded in the current and capital accounts. The statistical discrepancy can also be calculated as the difference between net lending (borrowing) measured from financial-account transactions and net lending (borrowing) measured from current- and capital-account transactions. The current-account balance is the difference between credits (exports and income receipts) and debits (imports and income payments) in the current account. The balance is a net measure of current-account transactions between the United States and the rest of the world. A positive balance indicates a current-account surplus. A negative balance indicates a current-account deficit. Net lending (borrowing) measures the balance of funds supplied to the rest of the world. Net lending means that, in net terms, the U.S. economy supplies funds to the rest of the world. Net borrowing means the opposite. Net lending (borrowing) can be measured by current- and capital- account transactions or by financial-account transactions. Conceptually, the two measures are equal. In practice, the two measures differ by the statistical discrepancy. Release and update cycle Preliminary quarterly statistics for the ITAs are released in March, June, September, and December approximately 80 days after the end of the reference quarter. These statistics are updated the following quarter to incorporate new source data. Quarterly statistics are open for revision for at least the prior three years in annual updates released in June. Preliminary annual statistics are released in March along with statistics for the fourth quarter of the previous year. These annual statistics are open for revision for at least the prior three years in subsequent annual updates. Related statistics The ITAs constitute one part of a broader set of U.S. international economic accounts that, taken together, provide a comprehensive, integrated, and detailed picture of U.S. international economic activities. The international investment position (IIP) accounts are released quarterly. Financial transactions that are reported in the ITAs are one type of change in position that are recorded in the IIP accounts. Statistics on direct investment and multinational enterprises (MNEs) include annual statistics on the activities of MNEs, detailed annual and quarterly statistics on direct investment, and annual statistics on new investment in the United States. Statistics on international services, released annually, include detailed annual information on trade in services and on services supplied through the channel of direct investment by affiliates of MNEs. U.S. international trade in goods and services, released by BEA and the U.S. Census Bureau, provides monthly statistics on trade in goods and services.