The United States slipped deeper into debt to foreign creditors in the third quarter as the balance of payments deficit grew to $30.5 billion, the Commerce Department reported yesterday.
This was the second-largest quarterly deficit for the broadest measure of the nation's trade and financial transactions with the rest of the world. The latest quarterly deficit was just $1.3 billion below the record $31.8 billion shortfall in the fourth quarter of last year, and was $2.8 billion higher than the $27.7 billion deficit in the second quarter of 1985.
On the basis of new information, the government said the trade picture was slightly better in the second quarter than it had appeared to be when the trade figures for April, May and June were released in September. The second-quarter deficit was revised down from $31.8 billion to $27.7 billion.
Balance-of-payment figures, also known as the current account, measure merchandise trade, sales of services and overseas investment.
The third-quarter deficit maintained the United States' new status as a debtor nation, which means that foreigners own more U.S. investments than Americans own overseas.
Last year, American investments overseas topped foreign investments in the United States by $28.3 billion, but that surplus has been wiped out now. In the third quarter from July to September, overseas investments increased by $10 billion. But the jump in foreign investment was more than three times as great, $33.9 billion.
All told, economists estimate that the United States is a net debtor to the rest of the world to the tune of $33 billion.
"They certainly are not very positive," Michael Evans of Evans Economics Inc. said of the third-quarter figures.
"There was supposed to be a slight improvement starting from the decline of the dollar in March, but we haven't seen anything yet. Apparently the dollar was so overvalued in February and March that the decline hasn't made any difference."
Evans added that being a debtor nation means the United States is "living on borrowed time, just like the man who borrows more and more money on his house.
"In a year or two, foreign investors could become less enthusiastic about putting their money in this country," Evans continued. "Interest rates would start rising, and we could end up in a recession."
Commerce Secretary Malcolm Baldrige blamed the increased flow of red ink on "the widening merchandise trade deficit," which rose $4.6 billion to a record $33.1 billion. This swamped improvements in the service sector that were largely because of the strengthening of the dollar.
Net service receipts jumped by 34 percent, or $2.3 billion, to $6.7 billion, as income on U.S. direct investment overseas increased $1.6 billion to $10.2 billion. This was because of an upsurge in the value of foreign currencies and the lowering of the dollar, which enhanced the value of income on overseas investments when it was converted to dollars.
At the same time, income from foreign ownership of investments in the United States declined by $400 million to $2.4 billion. This was largely because of falling interest rates.
Baldrige praised the Gramm-Rudman method of cutting the record U.S. budget deficit as "an important step toward this trend of increased U.S. earnings from overseas investments and sales of services by lowering interest rates and the dollar."
In the past, income from overseas investments and sales of services such as banking, engineering and insurance had been enough to overcome traditional deficits in merchandise trade. As recently as 1981, for example, the service sector showed a $41 billion surplus. The last quarter that the United States reported a current account surplus was the second quarter of 1982, when it totaled $2.2 billion.
"The deterioration since 1981 reflects foreign ownership of U.S. assets," Baldrige said. The balance of payments deficit was a record $107.4 billion last year and $46 billion in 1983. The deficit totaled $82.2 billion for the first three quarters of this year.
Imports in the third quarter jumped by $3.2 billion, to $85.5 billion, while exports dropped $1.3 billion, to $52.3 billion. Farm exports stood at their lowest level since the first quarter of 1979.