U.S. International Transactions

Second Quarter 2018

By Erin (Yiran) Xin  |  Volume 98, Number 10  |  October 19, 2018

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The U.S. current-account deficit—a net measure of transactions between the United States and the rest of the world in goods, services, primary income, and secondary income—decreased to $101.5 billion (preliminary) in the second quarter of 2018 from $121.7 billion (revised) in the first quarter of 2018 (chart 1 and table A). The deficit was 2.0 percent of current-dollar gross domestic product (GDP) in the second quarter, down from 2.4 percent in the first quarter.

The $20.3 billion decrease in the current-account deficit reflected a $17.6 billion decrease in the deficit on goods, a $2.5 billion increase in the surplus on services, and relatively small and offsetting changes in the balances on primary income and secondary income.

Net U.S. borrowing measured by financial-account transactions was $134.3 billion in the second quarter, a decrease from net borrowing of $160.9 billion in the first quarter.

Chart 1. U.S. Current-Account Balance and Its Components. Line Chart.

[Click chart to expand]

Table A. U.S. International Transactions
[Millions of dollars, seasonally adjusted]
  2017 2018 Change
2018:I to 2018:II
III IV Ir IIp
Current account          
Exports of goods and services and income receipts (credits) 868,997 890,393 905,298 933,274 27,976
Exports of goods and services 589,107 605,916 617,437 638,390 20,953
Goods 387,814 401,939 411,442 429,238 17,796
Services 201,293 203,977 205,994 209,152 3,158
Primary income receipts 237,632 248,940 256,029 259,930 3,901
Secondary income (current transfer) receipts 42,258 35,537 31,833 34,954 3,121
Imports of goods and services and income payments (debits) 972,445 1,006,541 1,027,008 1,034,734 7,726
Imports of goods and services 721,899 753,742 771,426 772,202 776
Goods 584,637 614,317 632,244 632,396 152
Services 137,261 139,426 139,182 139,806 624
Primary income payments 179,410 186,569 194,854 199,085 4,231
Secondary income (current transfer) payments 71,136 66,229 60,728 63,447 2,719
Capital account          
Capital transfer receipts and other credits 24,788 0 0 0 0
Capital transfer payments and other debits 1 40 2 n.a. n.a.
Financial account          
Net U.S. acquisition of financial assets excluding financial derivatives (net increase in assets / financial outflow (+)) 373,591 127,135 251,126 −175,112 −426,238
Direct investment assets 102,936 91,256 −139,326 −28,972 110,354
Portfolio investment assets 175,910 88,301 304,094 −23,737 −327,831
Other investment assets 94,804 −50,883 86,365 −125,471 −211,836
Reserve assets −61 −1,539 −7 3,068 3,075
Net U.S. incurrence of liabilities excluding financial derivatives (net increase in liabilities / financial inflow (+)) 504,082 159,164 441,080 −57,743 −498,823
Direct investment liabilities 107,107 38,250 57,949 24,565 −33,384
Portfolio investment liabilities 294,275 81,626 301,503 10,071 −291,432
Other investment liabilities 102,701 39,288 81,628 −92,379 −174,007
Financial derivatives other than reserves, net transactions 18,600 777 29,024 −16,969 −45,993
Statistical discrepancy          
Statistical discrepancy1 −33,231 84,936 −39,218 −32,877 6,341
Balances          
Balance on current account −103,447 −116,148 −121,710 −101,460 20,250
Balance on goods and services −132,791 −147,826 −153,989 −133,812 20,177
Balance on goods −196,823 −212,378 −220,802 −203,158 17,644
Balance on services 64,032 64,551 66,812 69,346 2,534
Balance on primary income 58,222 62,371 61,175 60,845 −330
Balance on secondary income −28,878 −30,692 −28,896 −28,493 403
Balance on capital account 24,787 −40 −2 0 2
Net lending (+) or net borrowing (−) from current- and capital-account transactions2 −78,660 −116,188 −121,712 −101,460 20,252
Net lending (+) or net borrowing (−) from financial-account transactions3 −111,891 −31,252 −160,930 −134,337 26,593
p
Preliminary
r
Revised
n.a.
Not available
  1. The statistical discrepancy is the difference between net acquisition of financial 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.
  2. Sum of current- and capital-account balances.
  3. Sum of net U.S. acquisition of financial assets and net transactions in financial derivatives less net U.S. incurrence of liabilities.

Note. The statistics are presented in table 1.2 on BEA’s website.

Current-account highlights

  • The deficit on goods decreased $17.6 billion in the second quarter to $203.2 billion.
  • The surplus on services increased $2.5 billion to $69.3 billion.
  • The deficit on secondary income decreased $0.4 billion to $28.5 billion.
  • The surplus on primary income decreased $0.3 billion to $60.8 billion.

Financial-account highlights

  • Net U.S. liquidation of financial assets excluding financial derivatives was $175.1 billion in the second quarter, following net U.S. acquisition of $251.1 billion in the first quarter (chart 2).
  • Net U.S. repayment of liabilities excluding financial derivatives was $57.7 billion in the second quarter, following net U.S. incurrence of $441.1 billion in the first quarter.
  • Transactions in financial derivatives other than reserves reflected second-quarter net borrowing of $17.0 billion, following net lending of $29.0 billion in the first quarter.
Chart 2. Acquisition of Financial Assets and Incurrence of Liabilities Excluding Financial Derivatives. Line Chart.

[Click chart to expand]

Statistical discrepancy

The statistical discrepancy was −$32.9 billion in the second quarter, following a statistical discrepancy of −$39.2 billion in the first quarter.

Exports of goods and services and income receipts increased $28.0 billion, or 3.1 percent, in the second quarter to $933.3 billion (charts 3 and 4 and table B).

  • Goods exports increased $17.8 billion, or 4.3 percent, to $429.2 billion, mostly reflecting increases in industrial supplies and materials, primarily petroleum and products, and in foods, feeds, and beverages, primarily soybeans.
  • Primary income receipts increased $3.9 billion, or 1.5 percent, to $259.9 billion, primarily reflecting increases in portfolio investment income and in other investment income. A decrease in direct 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.”
  • Services exports increased $3.2 billion, or 1.5 percent, to $209.2 billion, mainly reflecting increases in other business services, led by professional and management consulting services, in financial services, and in charges for the use of intellectual property.
Chart 3. Current-Account Transactions. Line Chart.

[Click chart to expand]

Chart 4. Percent Change in Exports of Goods and Services and Income Receipts. Line Chart.

[Click chart to expand]

Table B. Exports of Goods and Services and Income Receipts
[Millions of dollars, seasonally adjusted]
  2017 2018 Change
2018:I to 2018:II
III IV Ir IIp
Exports of goods and services and income receipts 868,997 890,393 905,298 933,274 27,976
Exports of goods 387,814 401,939 411,442 429,238 17,796
General merchandise 382,828 397,143 404,927 423,937 19,010
Foods, feeds, and beverages 34,209 32,099 33,338 40,521 7,183
Industrial supplies and materials 111,819 124,271 125,430 134,571 9,141
Energy products 38,716 46,234 46,972 54,033 7,061
Of which: Petroleum and products 33,122 40,384 40,109 46,916 6,807
Nonenergy products 73,103 78,037 78,458 80,538 2,080
Capital goods except automotive 134,985 137,341 138,209 141,647 3,438
Automotive vehicles, parts, and engines 39,078 39,761 42,207 40,334 −1,873
Consumer goods except food and automotive 48,879 49,807 51,598 51,282 −316
Other general merchandise 13,858 13,866 14,144 15,582 1,438
Net exports of goods under merchanting 47 56 66 53 −13
Nonmonetary gold 4,940 4,740 6,450 5,249 −1,201
           
Exports of services1 201,293 203,977 205,994 209,152 3,158
Maintenance and repair services n.i.e. 6,213 6,740 7,286 7,323 37
Transport 22,483 22,696 22,949 23,180 231
Travel (for all purposes including education) 52,980 53,429 53,504 53,811 307
Business 9,906 9,956 9,877 9,804 −73
Personal 43,074 43,473 43,627 44,007 380
Insurance services 4,708 4,755 4,555 4,629 74
Financial services 27,927 28,751 27,907 28,703 796
Charges for the use of intellectual property n.i.e. 32,273 32,762 33,577 34,181 604
Telecommunications, computer, and information services 10,735 10,902 10,913 11,189 276
Other business services 38,936 39,326 40,556 41,403 847
Government goods and services n.i.e. 5,037 4,617 4,748 4,735 −13
           
Primary income receipts 237,632 248,940 256,029 259,930 3,901
Investment income 236,058 247,367 254,435 258,325 3,890
Direct investment income 127,799 135,929 135,062 133,794 −1,268
Income on equity 120,340 128,884 128,094 126,789 −1,305
Dividends and withdrawals 55,110 26,874 294,856 169,533 −125,323
Reinvested earnings 65,229 102,009 −166,762 −42,745 124,017
Interest 7,459 7,046 6,969 7,006 37
Portfolio investment income 91,154 93,614 99,244 102,162 2,918
Income on equity and investment fund shares 61,241 62,535 65,937 67,345 1,408
Interest on debt securities 29,913 31,078 33,307 34,817 1,510
Other investment income 16,996 17,741 19,959 22,322 2,363
Reserve asset income 109 82 169 47 −122
Compensation of employees 1,573 1,573 1,594 1,605 11
Secondary income (current transfer) receipts2 42,258 35,537 31,833 34,954 3,121
p
Preliminary
r
Revised
n.i.e.
Not included elsewhere
  1. See also Shari A. Allen, Alexis N. Grimm, and Christopher P. Steiner, “U.S. International Services: Trade in Services in 2017 and Services Supplied Through Affiliates in 2016,” Survey of Current Business 98 (October 2018).
  2. Secondary income receipts include U.S. government and private transfers, such as fines and penalties, withholding taxes, insurance-related transfers, and other current transfers.

Note. The statistics are presented in table 1.2, table 2.1, table 3.1, table 4.1, and table 5.1 on BEA’s website.

Imports of goods and services and income payments increased $7.7 billion, or 0.8 percent, in the second quarter to $1,034.7 billion (charts 3 and 5 and table C).

  • Primary income payments increased $4.2 billion, or 2.2 percent, to $199.1 billion, mainly reflecting increases in other investment income and in portfolio investment income. A decrease in direct investment income partly offset the increases.
  • Secondary income payments increased $2.7 billion, or 4.5 percent, to $63.4 billion, primarily reflecting an increase in U.S. government grants.
  • Services imports increased $0.6 billion, or 0.4 percent, to $139.8 billion, mainly reflecting increases in other business services and in transport. A decrease in insurance services partly offset the increases.
  • Goods imports increased $0.2 billion, or less than 0.1 percent, to $632.4 billion, mostly reflecting offsetting changes across categories. Increases in industrial supplies and materials and in capital goods except automotive were mainly offset by decreases in consumer goods except food and automotive and in automotive vehicles, parts, and engines.
Chart 5. Percent Change in Imports of Goods and Services and Income Payments. Line Chart.

[Click chart to expand]

Table C. Imports of Goods and Services and Income Payments
[Millions of dollars, seasonally adjusted]
  2017 2018 Change
2018:I to 2018:II
III IV Ir IIp
Imports of goods and services and income payments 972,445 1,006,541 1,027,008 1,034,734 7,726
Imports of goods 584,637 614,317 632,244 632,396 152
General merchandise 581,849 610,844 629,436 629,718 282
Foods, feeds, and beverages 35,069 35,551 37,014 37,089 75
Industrial supplies and materials 123,450 133,707 142,210 146,228 4,018
Energy products 49,448 55,863 61,969 64,403 2,434
Of which: Petroleum and products 45,444 51,926 58,558 61,038 2,480
Nonenergy products 74,002 77,844 80,241 81,825 1,584
Capital goods except automotive 163,218 169,186 170,639 174,200 3,561
Automotive vehicles, parts, and engines 89,455 90,589 92,885 90,150 −2,735
Consumer goods except food and automotive 148,197 157,597 164,007 157,413 −6,594
Other general merchandise 22,460 24,214 22,681 24,638 1,957
Nonmonetary gold 2,789 3,473 2,809 2,678 −131
           
Imports of services1 137,261 139,426 139,182 139,806 624
Maintenance and repair services n.i.e. 2,004 2,059 2,093 2,063 −30
Transport 25,352 25,872 26,253 26,619 366
Travel (for all purposes including education) 33,813 34,906 35,553 35,600 47
Business 4,147 4,140 4,009 4,182 173
Personal 29,666 30,766 31,544 31,418 −126
Insurance services 13,094 12,434 9,754 9,216 −538
Financial services 7,478 7,628 7,532 7,638 106
Charges for the use of intellectual property n.i.e. 13,136 13,808 13,925 13,710 −215
Telecommunications, computer, and information services 10,068 10,280 10,174 10,343 169
Other business services 26,774 26,929 28,246 28,954 708
Government goods and services n.i.e. 5,541 5,510 5,653 5,662 9
           
Primary income payments 179,410 186,569 194,854 199,085 4,231
Investment income 174,430 181,601 189,875 194,092 4,217
Direct investment income 51,342 55,978 57,458 56,312 −1,146
Portfolio investment income 109,845 111,305 114,968 116,948 1,980
Income on equity and investment fund shares 36,670 36,625 38,844 40,190 1,346
Interest on debt securities 73,175 74,680 76,124 76,758 634
Other investment income 13,243 14,317 17,448 20,832 3,384
Compensation of employees 4,980 4,969 4,979 4,993 14
Secondary income (current transfer) payments2 71,136 66,229 60,728 63,447 2,719
           
Supplemental detail on insurance transactions:          
Premiums paid 33,943 31,429 23,986 23,699 −287
Losses recovered 46,595 21,603 18,689 18,859 170
p
Preliminary
r
Revised
n.i.e.
Not included elsewhere
  1. See also Shari A. Allen, Alexis N. Grimm, and Christopher P. Steiner, “U.S. International Services: Trade in Services in 2017 and Services Supplied Through Affiliates in 2016,” Survey of Current Business 98 (October 2018).
  2. Secondary income 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.

Note. The statistics are presented in table 1.2, table 2.1, table 3.1, table 4.1, and table 5.1 on BEA‘s website.

Liquidation of financial assets

  • Net U.S. sales of portfolio investment assets were $23.7 billion, following net U.S. purchases of $304.1 billion in the first quarter (chart 6 and table D). This change mostly reflected net U.S. sales of foreign equity and investment fund shares, following net purchases in the first quarter.
  • Net U.S. liquidation of other investment assets was $125.5 billion, following net U.S. acquisition of $86.4 billion in the first quarter. This change mostly reflected net foreign repayment of loans, following net U.S. provision of loans to foreigners in the first quarter.
  • Net U.S. withdrawal of direct investment assets decreased $110.4 billion to $29.0 billion. The net withdrawal of direct investment assets reflected U.S. parent repatriation of previously reinvested earnings in response to the Tax Cuts and Jobs Act. For more information, see “Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts.”

Repayment of liabilities

  • Net U.S. incurrence of portfolio investment liabilities decreased $291.4 billion to $10.1 billion, reflecting both net foreign sales of U.S. equity and investment fund shares, following net purchases in the first quarter, and a decrease in net foreign purchases of U.S. long-term debt securities.
  • Net U.S. repayment of other investment liabilities was $92.4 billion, following net incurrence of $81.6 billion in the first quarter. This change mostly reflected net U.S. repayment of loan liabilities, following net incurrence of loans in the first quarter.
Chart 6. Transactions in Financial Assets and Liabilities Excluding Financial Derivatives. Line Chart.

[Click chart to expand]

Table D. Net U.S. Acquisition of Financial Assets and Net U.S. Incurrence of Liabilities
[Millions of dollars, seasonally adjusted]
  2017 2018 Change
2018:I to 2018:II
III IV Ir IIp
Net U.S. acquisition of financial assets excluding financial derivatives (net increase in assets / financial outflow (+)) 373,591 127,135 251,126 −175,112 −426,238
Direct investment assets 102,936 91,256 −139,326 −28,972 110,354
Equity 69,079 101,537 −167,731 −36,473 131,258
Equity other than reinvestment of earnings 3,850 −472 −969 6,272 7,241
Reinvestment of earnings 65,229 102,009 −166,762 −42,745 124,017
Debt instruments 33,857 −10,281 28,406 7,501 −20,905
Portfolio investment assets 175,910 88,301 304,094 −23,737 −327,831
Equity and investment fund shares 63,399 −39,233 200,871 −73,520 −274,391
Debt securities 112,512 127,534 103,223 49,783 −53,440
Short-term securities 74,149 40,467 27,771 2,469 −25,302
Long-term corporate securities 26,957 62,231 53,741 32,876 −20,865
Other long-term securities 11,406 24,836 21,711 14,438 −7,273
Other investment assets 94,804 −50,883 86,365 −125,471 −211,836
Currency and deposits 78,488 4,850 53,816 −26,991 −80,807
Loans 15,099 −55,760 33,356 −101,486 −134,842
Trade credit and advances 1,217 26 −807 3,006 3,813
Reserve assets −61 −1,539 −7 3,068 3,075
Monetary gold 0 0 0 0 0
Special drawing rights 26 26 33 33 0
Reserve position in the International Monetary Fund −98 −1,535 −73 3,136 3,209
Other reserve assets 11 −29 34 −101 −135
           
Net U.S. incurrence of liabilities excluding financial derivatives (net increase in liabilities / financial inflow (+)) 504,082 159,164 441,080 −57,743 −498,823
Direct investment liabilities 107,107 38,250 57,949 24,565 −33,384
Equity 72,927 64,320 72,661 33,445 −39,216
Equity other than reinvestment of earnings 42,799 36,488 37,499 4,724 −32,775
Reinvestment of earnings 30,127 27,832 35,163 28,721 −6,442
Debt instruments 34,180 −26,070 −14,712 −8,880 5,832
Portfolio investment liabilities 294,275 81,626 301,503 10,071 −291,432
Equity and investment fund shares 80,561 −3,377 154,313 −26,164 −180,477
Debt securities 213,713 85,003 147,190 36,235 −110,955
Short term −20,035 25,215 31,355 34,585 3,230
Treasury bills and certificates 9,132 20,270 13,560 33,703 20,143
Federally sponsored agency securities −1,927 2,160 2,214 −680 −2,894
Other short-term securities −27,240 2,785 15,581 1,562 −14,019
Long term 233,748 59,788 115,835 1,651 −114,184
Treasury bonds and notes 150,035 546 73,078 −12,865 −85,943
Federally sponsored agency securities 14,153 8,523 37,775 5,983 −31,792
Corporate bonds and notes 70,281 51,058 4,731 6,524 1,793
Other −721 −339 251 2,009 1,758
Other investment liabilities 102,701 39,288 81,628 −92,379 −174,007
Currency (short term) 15,850 17,262 16,970 19,391 2,421
Deposits −31,642 44,161 −27,004 −53,800 −26,796
Loans 112,549 −23,436 82,566 −63,135 −145,701
Trade credit and advances 5,943 1,302 9,096 5,165 −3,931
Special drawing rights allocations 0 0 0 0 0
p
Preliminary
r
Revised

Note. The statistics are presented in table 1.2, table 6.1, table 7.1, and table 8.1 on BEA’s website.

In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises consists of (1) a portion that is repatriated to the parent company in the United States in the form of dividends and (2) 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, earnings were $128.1 billion, with dividends of $294.9 billion and reinvested earnings of −$166.8 billion. In the second quarter, earnings were $126.8 billion, with dividends of $169.5 billion and reinvested earnings of −$42.7 billion (chart 7 and table B).

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 U.S. parent companies 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 any further taxes on repatriated earnings. The negative reinvested earnings in the first and second quarters reflect the fact that dividends exceeded earnings 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 −$139.3 billion in the first quarter and −$29.0 billion in the second quarter (table D).

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?”

Chart 7. Direct Investment Income Receipts and Components. Line Chart.

[Click chart to expand]

In addition to the repatriation of accumulated earnings, some companies made other changes to their business practices in reaction to the TCJA. For example, some insurance companies changed how they operate in response to the base erosion and anti-abuse tax (BEAT) provision of the TCJA. BEAT is a tax on certain payments from a U.S. company to a related foreign party, which can include premium payments for reinsurance. In response to the new tax, many U.S. insurance companies terminated these intracompany reinsurance contracts. As a result, premiums paid by U.S. insurers to foreign insurers in the first and second quarters of 2018—$24.0 billion and $23.7 billion, respectively—were down from $31.4 billion in the fourth quarter of 2017 and from other recent quarters (table C). Similarly, insurance services imports in the first and second quarters—$9.8 billion and $9.2 billion, respectively—were down from $12.4 billion in the fourth quarter of 2017 and from other recent quarters.

For more information on the estimation methods used to compile insurance services, see the insurance section in “U.S. International Economic Accounts: Concepts and Methods.”