Trade Deficit Hits High on Oil Prices

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 Monday.

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.

On Wall Street, the Dow Jones industrial average fell 4.25 points to close at 12,441.27 on Monday. It was the first time in four sessions that Wall Street had a down day.

At current levels, the United States is borrowing more than $2 billion a day from foreigners to finance the trade deficit.

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 new record for the full year, far surpassing last year's record 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.