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U.S. international transactions, first quarter 1991.

U.S. International Transactions, First Quarter 1991

The U.S. current-account balance was a surplus of $10.2 billion in the first quarter of 1991, in contrast to a deficit of $23.4 billion (revised) in the fourth quarter of 1990. The shift stemmed from two developments: A $26.2 billion shift in unilateral transfers from net payments to net receipts, reflecting cash contributions from coalition partners in Operation Desert Storm; and a $7.4 billion decrease in the deficit on goods, services, and income.(1)

Net capital inflows were $5.3 billion in the first quarter, compared with $4.3 billion in the fourth quarter. Both U.S. assets abroad and foreign assets in the United States recorded moderate decreases in the first quarter, in contrast to substantial increases in the fourth.

The statistical discrepancy (errors and omissions in recorded transactions) was an outflow of $15.5 billion in the first quarter, in contrast to an inflow of $19.1 billion in the fourth.

U.S. dollar in exchange markets

The trade-weighted value of the dollar increased 2 percent in the first quarter against the currencies of 10 industrial countries and those of 22 OECD countries and 4 newly industrialized countries in the Far East (table C, chart 1). Changing perceptions of the situation in the Persian Gulf and of economic conditions in major countries caused the dollar to fluctuate considerably against the Japanese yen and the currencies of the European Monetary System (EMS).

During the first 2 weeks of January, the dollar appreciated moderately against the Japanese yen and the EMS currencies, as the prospect of war with Iraq raised demand for the dollar even though yields on dollar-denominated assets were lower than those on foreign assets. From the middle of January to the middle of February, the dollar depreciated significantly, reaching new lows against the German mark. Demand for the dollar decreased during this period as traders, reassured by apparent success in the Persian Gulf, began to focus on the weakening U.S. economy and widening yield differentials.

From the middle of February to the end of the quarter, the dollar appreciated sharply, particularly against the German mark. Purchases of dollars by U.S. and foreign monetary authorities were initially responsible for the turnaround. Expectations of a rapid recovery in the United States following the end of the conflict in the Persian Gulf, as well as expectations of narrowing yield differentials, then led to rapid appreciation of the dollar. Expectations of slower growth in Germany as a result of the costs of unification may also have contributed to the dollar's advance.

The dollar was relatively stable against other currencies, depreciating less than 1 percent against the Canadian dollar and the South Korean won, and remaining virtually unchanged against the Taiwan dollar.

Current Account

Merchandise trade

The merchandise trade deficit decreased to $18.4 billion in the first quarter, its lowest level since the second quarter of 1983, from $27.7 billion in the fourth quarter of 1990. The reduction resulted primarily from a large decrease in imports (table E).

Exports.--Exports increased $0.3 billion, or less than 1 percent, to $100.9 billion; volume increased 2 percent. Agricultural exports more than accounted for the increase in value.

Nonagricultural exports decreased $0.2 billion, or less than 1 percent, to $90.9 billion; volume increased 2 percent. Decreases in automotive exports and in industrial supplies and materials were partly offset by an increase in miscellaneous exports and reexports. Consumer and capital goods (except automotive) were unchanged.

Agricultural exports increased $0.5 billion, or 5 percent, to $9.9 billion; volume increased 3 percent. Exports of corn, soybeans, meat and poultry, and cotton accounted for most of the increase. Corn was boosted by a substantial increase in shipments to the Soviet Union; the step-up was encouraged by the provision of agricultural credit guarantees by the United States that had been withheld in the fourth quarter. The average export prices of corn and of meat and poultry increased moderately, while those of soybeans and cotton decreased moderately.

Although both nonagricultural and agricultural exports have grown in recent years, their growth patterns have differed (charts 2). Nonagricultural exports have grown at an average rate of 2.5 percent per quarter since the first quarter of 1988, with increases in volume accounting for virtually all of the growth. Agricultural exports have grown at an average rate of 0.9 percent per quarter. In relation to gross national product, nonagricultural exports have risen 1 percentage point in current dollars and more than 2 percentage points in constant (1982) dollars (chart 3).

Imports.--Imports decreased $9.1 billion, or 7 percent, to $119.2 billion; volume decreased 2 percent. Both nonpetroleum and petroleum imports contributed to the decrease in value.

Nonpetroleum imports decreased $4.2 billion, or 4 percent, to $106.1 billion; volume decreased 3 percent. Decreases occurred in all major commodity groups, with the largest in consumer goods (primarily durables), automotive products (primarily those from Canada), and nonpetroleum industrial supplies and materials.

Petroleum imports decreased $4.9 billion, or 27 percent, to $13.2 billion. The average price per barrel dropped 29 percent, to $20.33 from $28.75, as success in the Persian Gulf alleviated concerns about shortages; volume rose 3 percent. Consumption, which fell sharply in the fourth quarter in response to the declining economy and rising petroleum prices, remained low in the first quarter in response to the continued decline of the economy and mild weather. Withdrawals from inventories, including a small release from the Strategic Petroleum Reserve, supplemented domestic supplies.

Nonpetroleum imports have grown at an average rate of 0.5 percent per quarter since the first quarter of 1988 (chart 2); an increase in volume more than accounted for this growth, as the average price declined slightly over the period. Petroleum imports have grown at an average rate of 2.3 percent per quarter (chart 2); increases in the average price per barrel were largely responsible for this growth, although both volume and price fluctuated considerably from quarter to quarter. In relation to gross national product, nonpetroleum imports have fallen 0.7 percentage point in current dollars but have risen 0.5 percentage point in constant (1982) dollars (chart 3).

Balances by area.--Trade balances with all major countries and areas improved in the first quarter. As a result of higher exports and lower imports, the surplus with Western Europe increased $3.2 billion, to $4.6 billion, and the deficit with the newly industrialized countries in the Far East decreased $2.3 billion, to $2.5 billion. Lower imports led to a decrease in the deficit with the OPEC countries of $2.0 billion, to $4.7 billion, and to small decreases in the deficits with Canada ($0.5 billion, to $2.6 billion), Japan ($0.2 billion, to $11.0 billion), and Mexico ($0.2 billion, to $0.4 billion).

Service transactions

The balance on services declined slightly in the first quarter to a surplus of $7.0 billion, compared with a surplus of $7.5 billion in the fourth quarter of 1990. Receipts decreased $2.0 billion, to $33.8 billion, reflecting sharp decreases in travel and passenger fare receipts and small decreases in most other components. Payments decreased $1.5 billion, to $26.8 billion, reflecting moderate decreases in most major components.

Travel receipts decreased $1.1 billion, to $9.9 billion. Receipts from overseas accounted for most of the decrease; receipts from Mexico decreased slightly, while receipts from Canada were unchanged. Travel payments decreased $0.6 billion, to $9.3 billion, reflecting a decrease in payments overseas. The declines in both receipts and payments resulted primarily from the situation in the Persian Gulf, which significantly reduced travel between the United States and Western Europe. Reflecting the reductions in overseas travel, passenger fare receipts decreased $0.5 billion, to $2.9 billion, and passenger fare payments decreased $0.3 billion, to $1.9 billion.

Other transportation receipts decreased $0.2 billion, to $5.6 billion, as the decrease in merchandise imports led to a decrease in port services receipts. Other transportation payments decreased $0.4 billion, to $5.8 billion. Freight payments decreased $0.1 billion as a result of the decrease in merchandise imports; port services payments decreased $0.2 billion, primarily as a result of reduced overseas travel and a decline in the price of jet fuel.

Receipts from other private services increased $0.3 billion, to $8.8 billion. Payments for other private services increased $0.2 billion, to $3.8 billion.

Transfers under U.S. military agency sales contracts decreased $0.3 billion in the first quarter, to $2.4 billion. A decrease in deliveries to Saudi Arabia, reflecting the completion of military preparations in that country, more than accounted for the decrease; deliveries to numerous other countries increased. U.S. direct defense expenditures abroad decreased $0.3 billion in the first quarter, to $4.6 billion. Petroleum expenditures, which had increased $0.5 billion in the fourth quarter, decreased $0.2 billion, as a sharp decline in the price of petroleum more than offset an increase in the volume of purchases. Other expenditures to support the coalition armed forces decreased $0.2 billion because the Saudi Government took over procurement of supplies and services that had been handled by the U.S. Department of Defense.

Investment income

Net investment income decreased $1.4 billion in the first quarter, to $4.7 billion. Receipts of income on U.S. assets abroad decreased $1.8 billion, to $33.0 billion, as a decrease in receipts from portfolio investment more than offset an increase in receipts from direct investment. Payments of income on foreign assets in the United States decreased $0.3 billion, to $28.3 billion.

Direct investment income.--Receipts of income on U.S. direct investment abroad increased to $15.8 billion from $14.1 billion; increases in the operating earnings of nonpetroleum affiliates more than accounted for the increase. Payments of income on foreign direct investment in the United States were $0.7 billion, a shift from the net loss of $1.4 billion in the fourth quarter; a substantial decrease in operating losses and an increase in capital gains accounted for the shift.

Portfolio investment income.--Receipts of income on other private investment abroad decreased $1.5 billion, to $15.2 billion; lower receipts on bank claims, reflecting sharply lower average interest rates, accounted for most of the decrease. Receipts of income on U.S. Government assets decreased $2.1 billion, to $1.9 billion. Fourth-quarter receipts had been boosted by the forgiveness of interest owed by the Egyptian Government to the U.S. Government.

Payments of income on other private investment in the United States decreased $2.2 billion, to $18.0 billion. Payments on bank liabilities decreased $1.2 billion as a result of lower average interest rates. Payments on corporate stocks and bonds decreased $0.9 billion, reflecting previous sales of securities by foreigners. Payments of income on U.S. Government liabilities decreased $0.2 billion.

Unilateral transfers

Net unilateral transfers shifted to receipts of $16.9 billion in the first quarter from payments of $9.3 billion in the fourth quarter of 1990. A shift in U.S. Government grants, reflecting $22.7 billion in cash contributions from coalition partners in Operation Desert Storm, accounted for most of the change. Partly offsetting was $1.0 billion in forgiveness of part of the Egyptian Government's military debt to the United States. (The offsetting entry is recorded as a repayment on U.S. Government credits in table 1, line 41).(2)

Capital Account

U.S. assets abroad

U.S. assets abroad decreased $7.2 billion in the first quarter, in contrast to an increase of $34.7 billion in the fourth. A substantial shift in bank claims more than accounted for the shift.

U.S. official reserve assets.--U.S. official reserve assets increased $0.4 billion, compared with $1.1 billion in the fourth quarter. An increase in the U.S. reserve position at the International Monetary Fund accounted for virtually all of this increase. Holdings of foreign currencies increased less than $0.1 billion.

Claims reported by banks.--U.S. claims on foreigners reported by U.S. banks decreased $23.9 billion, in contrast to an increase of $24.5 billion in the fourth quarter; banks' own claims payable in dollars accounted for most of the shift. Claims on own foreign offices and unaffiliated foreign banks decreased $17.5 billion, in contrast to an increase of $18.9 billion, as loans extended at yearend were repaid and slow growth abroad restricted the demand for new loans. Reductions in claims on banks in Western Europe, Japan, and elsewhere in Asia were partly offset by increases in claims on banks in Latin America and the Caribbean.

Claims on foreign public borrowers increased, but claims on other private foreigners decreased substantially as the previous quarter's lending to Caribbean firms under short-term repurchase agreements was reversed.

Banks' own claims payable in foreign currencies increased $1.3 billion, in contrast to a decrease of $2.0 billion. Banks' domestic customers' claims decreased $5.9 billion, in contrast to an increase of $7.2 billion.

Foreign securities.--Net U.S. purchases of foreign securities were $9.4 billion, compared with $7.5 billion in the fourth quarter. Net purchases of stocks increased substantially, while net purchases of bonds decreased.

Net U.S. purchases of foreign stocks were $6.6 billion, compared with $0.4 billion. Both the relatively low net purchases in the fourth quarter and the relatively high net purchases in the first were largely attributable to the situation in the Persian Gulf. Increasing uncertainty about the situation severely restricted purchases in the fourth quarter, as it had in the third quarter; however, after the initial success of the air strikes in late January, expectations of both lower petroleum prices and more rapid economic growth worldwide led to a surge in U.S. purchases, accompanied by large price increases on all major foreign stock exchanges. Stock purchases from Japan increased $5.0 billion, to $5.1 billion, in the first quarter; transactions with Western Europe shifted $2.8 billion, to net purchases of $1.8 billion. Partly offsetting were increases in net sales of stocks to Canada and a shift to net sales to the Caribbean.

Net U.S. purchases of foreign bonds were $2.9 billion, compared with $7.2 billion. New issues of foreign bonds in the United States decreased $1.8 billion, to $5.3 billion; the fourth-quarter level had been boosted by a special $2.2 billion issue of bonds as part of Venezuela's debt restructuring. Lower interest rates in the United States prompted several large bond issues in the first quarter, particularly by Canada and the World Bank. Net U.S. sales of outstanding bonds were $1.2 billion, in contrast to net purchases of $1.2 billion. Large net sales of bonds to Germany, partly reflecting the depreciation of the mark and expectations of slower growth in Germany, were largely responsible.

Direct investment.--Net outflows for U.S. direct investment abroad were $8.5 billion, compared with $3.8 billion in the fourth quarter. A large shift to intercompany debt outflows was primarily responsible for this change. Intercompany debt shifted from inflows of $4.3 billion in the fourth quarter to outflows of $0.2 billion. An $8.1 billion shift to outflows to affiliates in Western Europe, reflecting large new loans and repayments of funds borrowed from abroad during the fourth quarter, was partly offset by a $4.2 billion shift to inflows from Other Western Hemisphere affiliates. Equity capital outflows decreased $1.3 billion to $0.6 billion; a dropoff in capital contributions to Western Europe and the sale of affiliates there contributed to the decrease. Reinvested earnings increased $1.5 billion, to $7.7 billion.

Foreign assets in the United States

Foreign assets in the United States decreased $1.9 billion in the first quarter, in contrast to an increase of $39.0 billion in the fourth. A large shift in bank liabilities and a smaller increase in foreign official assets in the United States more than accounted for the shift.

Foreign official assets.--Foreign official assets in the United States increased $6.5 billion, compared with $20.3 billion in the fourth quarter (table B). Dollar assets of industrial countries decreased $8.5 billion, in contrast to an increase of $12.8 billion. The decrease probably reflected the use of dollar reserves to make some contributions to the United States for operations in the Persian Gulf, as well as intervention sales of dollars in exchange markets. Dollar assets of OPEC countries increased $1.1 billion, compared with an increase of $0.6 billion. Dollar assets of other countries increased $14.0 billion, compared with an increase of $6.9 billion.

Liabilities reported by banks.--U.S. liabilities to foreigners reported by U.S. banks, excluding U.S. Treasury securities, decreased $19.4 billion, in contrast to an increase of $17.3 billion in the fourth quarter. Banks' own liabilities payable in dollars accounted for much of the shift. Among the factors contributing to the shift were the following: A decline in short-term interest rates in the United States relative to those abroad; lower demand for U.S. bank credit, which reduced banks' requirements for foreign funds; repayment of large yearend borrowings from banks' own foreign offices in the United Kingdom and the Caribbean; and a shift by foreign-owned banks in the United States to greater use of deposits from U.S. residents, following the Federal Reserve's elimination (effective December 27, 1990) of reserve requirements on nonpersonal time deposits.

Banks' liabilities payable in foreign currencies decreased $5.3 billion, after a decrease of $0.6 billion in the fourth. Banks' custody liabilities payable in dollars decreased $1.8 billion, after an increase of $0.7 billion.

U.S. Treasury securities.--Net foreign purchases of U.S. Treasury securities were $3.9 billion, in contrast to net sales of $2.0 billion in the fourth quarter. Marketable bonds and notes accounted for most of the shift; net purchases of short-term Treasury securities increased moderately.

Transactions in marketable bonds and notes shifted $1.8 billion in January, to net purchases of $0.4 billion. In February, net purchases increased to $5.9 billion in response to the rally in the U.S. bond market. In March, however, the rebound in U.S. stock prices and profit-taking prompted by the appreciation of the dollar led to net sales of $3.7 billion. For the quarter as a whole, shifts to net purchases by investors in Western Europe and Japan more than offset a large shift to net sales by investors in the Caribbean. Transactions in short-term Treasury securities shifted $4.9 billion in January, to net purchases of $3.6 billion, but reverted to net sales of $2.3 billion for the rest of the quarter.

Other U.S. securities.--Net foreign purchases of U.S. securities other than U.S. Treasury securities were $5.0 billion, compared with $0.8 billion in the fourth quarter. Transactions in stocks swung $6.6 billion, from large net sales to moderate net purchases; net purchases of bonds decreased $2.3 billion.

Foreign investors purchased a net $1.4 billion in U.S. corporate stocks in the first quarter, after having sold a net $5.2 billion in the fourth. This relatively sharp shift, which resulted in net purchases for the first time since the third quarter of 1989, was accompanied by large price increases on U.S. stock exchanges and appreciation of the dollar in the last half of the quarter. Investors in the Caribbean and in countries in the Far East other than Japan shifted to net purchases in the first quarter from net sales in the fourth; investors in Japan and Western Europe reduced their net sales.

Net foreign purchases of U.S. bonds were $3.6 billion, compared with $6.0 billion in the fourth quarter. New issues abroad by U.S. corporations decreased slightly. Although rising yields and appreciation of the dollar led to a surge of issues in the second half of the quarter, the uncertainties from the situation in the Persian Gulf sharply curtailed new issues in the first half. Net purchases of U.S. federally sponsored agency bonds were $0.8 billion, compared with $2.4 billion. Net sales of outstanding corporate bonds were $0.4 billion, in contrast to net purchases of $0.1 billion.

Direct investment.--Net inflows for foreign direct investment in the United States were $2.0 billion, compared with $4.5 billion in the fourth quarter. A sharp decrease in equity capital inflows and a shift to intercompany debt outflows more than offset an improvement in reinvested earnings. Equity capital inflows were $5.8 billion, compared with $11.5 billion; most of the decrease was in inflows from Western Europe and reflected large inflows in the fourth quarter. Intercompany debt shifted to outflows of $0.7 billion from inflows of $0.3 billion; a substantial shift to outflows to Japan and greatly reduced inflows from Western Europe were partly offset by a decrease in outflows to Other Western Hemisphere countries. Reinvested earnings were --$3.0 billion, compared with --$7.3 billion; affiliates of Western European companies accounted for most of the reduction, which reflected reduced losses in the first quarter as well as large distributed earnings in the fourth.

Technical Notes

As is customary each June, estimates of U.S. international transactions are revised to incorporate new source data, improved methodologies, and changes in definitions. Major improvements introduced this year include new seasonal adjustment procedures for merchandise trade and incorporation of results from the benchmark survey of foreign direct investment in the United States for 1987.

Merchandise trade

Estimates for merchandise trade have been revised for 1989-90. For both exports and imports, the revisions reflect the inclusion of errata, the retabulation of data to incorporate timing adjustments, revisions of some balance of payments adjustments, and the application of new seasonal factors.

Quarterly seasonally adjusted series have been revised to reflect the application of seasonal factors developed jointly by BEA and the Census Bureau. Revised seasonally adjusted data for 1978-88 will be published with the introduction of the benchmarked national income and product accounts estimates in the autumn of 1991 and will be incorporated into the international transactions accounts in June 1992.

BEA and the Census Bureau now publish the same seasonally adjusted Census-basis data for the period beginning with the first quarter of 1990 except for six series--four in exports and two in imports--that show quarterly, but not monthly, seasonal patterns. BEA seasonally adjusts these series, but the Census Bureau does not.

Unadjusted historical Census-basis data for 1978-89 published by BEA will differ slightly from those published by the Census Bureau because BEA retabulates data to incorporate timing adjustments over a longer period than does the Census Bureau.

The effects of these revisions for 1989-90 are shown in table F.

Direct investment accounts

For 1987-90, estimates for the foreign direct investment in the United States accounts (part of lines 22 and 23 in tables 1 and 10, lines 26 and 57 in tables 1 and 10, and lines 44-86 in table 5) have been revised to incorporate the results of the 1987 benchmark survey of foreign direct investment in the United States. Previously, estimates were based on the 1980 benchmark survey.

The benchmark survey covered the universe of U.S. affiliates of foreign direct investors. In nonbenchmark years, universe estimates for income, royalties and fees, and other private services are derived from data reported quarterly by a sample of the affiliates that reported in the benchmark survey, as well as by affiliates that entered the direct investment universe since the benchmark survey and that met the reporting criteria for the quarterly sample survey. To obtain universe estimates in nonbenchmark years, data reported previously (usually in the benchmark survey) by affiliates that did not report in the quarterly sample survey are extrapolated forward based on the movement of data for a matched sample of affiliates that did report in the quarterly survey. For capital flows (excluding reinvested earnings) and for capital gains and losses, only data actually reported on the surveys are included in the estimates.

In table G, the revised estimates for 1987, which incorporate information from the 1987 benchmark survey, are compared with previously published estimates for 1987, which were based on the 1980 benchmark survey. On the revised basis, capital inflows were $58.1 billion, $11.2 billion higher than previously published. Income on the revised basis, at $7.2 billion, was $2.3 billion lower. Net payments for royalties and license fees were $0.1 billion higher, and net receipts for other services were $0.1 billion lower.

Much of the $11.2 billion upward revision in capital inflows for 1987 was in intercompany debt and was accounted for by affiliates that did not report in the 1987 quarterly surveys or that reported inaccurately or too late for the reported data to be included in the estimates. Much of the $2.3 billion downward revision in income reflected the prior overestimation of reported earnings and, to a lesser extent, the removal of affiliates that the benchmark survey indicated had left the universe.

The revisions to the estimates for 1988 and 1989 reflect not only the incorporation of information from the 1987 benchmark survey, but also information obtained from BEA's survey of new foreign investments, its annual survey of foreign direct investment, and from late and revised quarterly reports.

The revisions in capital inflows for 1988 and 1989 were relatively small, reflecting partly offsetting revisions to its components: Capital inflows were revised up $1.0 billion for 1988 and down $1.7 billion for 1989. Sizable upward revisions in equity capital inflows for both years largely reflected information from late reports. However, these upward revisions were largely offset by downward revisions in reinvested earnings for both years and a sizable downward revision in intercompany debt inflows for 1989.

Income was revised downward for both 1988 and 1989, by $3.1 billion and $2.5 billion, respectively. The revisions mainly reflected the prior overestimation of earnings and, to a lesser extent, the removal of affiliates that the benchmark survey indicated had left the universe.

For a more detailed explanation of the revisions made and the estimation procedures used, see the Technical Notes in "The International Investment Position of the United States in 1990" in this issue of the Survey. [Tabular Data A to G Omitted] [Charts 1 to 4 Omitted]

(1)The analysis in this article is based on seasonally adjusted estimates of the components of the current and capital accounts. The accompanying tables present both adjusted and unadjusted estimates. (2)Additional information on the special transactions associated with Operation Desert Storm and their treatment in the international transactions accounts is contained in the article "U.S. International Transactions, Fourth Quarter and Year 1990" in the March 1991 Survey of Current Business.
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Author:Nicholson, Robert E., Jr.
Publication:Survey of Current Business
Date:Jun 1, 1991
Words:4542
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