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US trade deficit sets a record

Oil prices fuel rise; improvement seen in months ahead

Cargo containers are lifted onto a ship in Elizabeth, N.J., yesterday. High oil prices pushed the US trade deficit to a record in the summer. Cargo containers are lifted onto a ship in Elizabeth, N.J., yesterday. High oil prices pushed the US trade deficit to a record in the summer. (MIKE DERER/ASSOCIATED PRESS)

WASHINGTON -- Pushed up by soaring oil prices, America's trade deficit surged to a record high in the summer, but analysts predicted a slowly improving imbalance in the months ahead.

The current account trade deficit increased 3.9 percent to an all-time high of $225.6 billion in the July-September quarter, the Commerce Department reported yesterday.

That third-quarter deficit was equal to 6.8 percent of the total economy, up from 6.6 percent of gross domestic product in the second quarter.

The current account is the broadest measure of trade because it tracks not only the flow of goods and services across borders but also investment flows. It represents the amount of money that must be borrowed from foreigners to make up the difference between imports and exports.

While foreigners have been happy to sell their cars, clothing, and computers to Americans and hold dollars in return, the worry is that at some point the desire for dollar-denominated assets could weaken, triggering sharp declines in the value of the dollar and pushing interest rates higher.

Analysts noted that for the third straight quarter, foreigners earned more on their U S investments than Americans did on their foreign holdings, sending the deficit in investment flows to a record of $3.8 billion.

The current account deficit is expected to hit a record for the full year, far surpassing last year's high of $791.5 billion, although some analysts said they believed the third-quarter figure would represent the worst of the deficit numbers.

"Lower oil prices, robust export growth, and some cooling in import growth should bring the deficit down, beginning in the fourth quarter," said Nigel Gault, an economist with Global Insight, a private forecasting firm.

He predicted the deficit would average around $866 billion this year but shrink moderately to $816 billion next year.

But imbalances at this level will still leave U S financial markets vulnerable to foreign investment patterns, economists said.

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