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U.S. international transactions, first quarter 1989.

U.S. International Transactions, First Quarter 1989

Services have been redefined to exclude investment income. Currency translation adjustments have been removed from U.S. direct investment income and U.S. direct investment capital.

THE U.S. current-account deficit decreased to $22.9 billion in the first quarter of 1990 from $26.7 billion (revised) in the fourth quarter of 1989. The decrease in the deficit was due to a smaller deficit on merchandise trade, which resulted from an unusually large increase in exports, and to lower net unilateral transfers.(1)

In the private capital accounts, both U.S. assets abroad and foreign assets in the United States decreased in the first quarter, in contrast to substantial increases in the fourth quarter. The shift in U.S. assets abroad was primarily due to U.S. claims on foreigners reported by U.S. banks, which decreased $45.7 billion, in contrast to an increase of $32.7 billion. The shift in foreign assets in the United States was the result of several factors. U.S. liabilities reported by U.S. banks, excluding U.S. Treasury securities, decreased $28.1 billion, in contrast to an increase of $36.7 billion. Inflows for foreign direct investment decreased substantially, to $7.6 billion from $21.5 billion. Transactions in U.S. Treasury securities shifted to small net sales, and net purchases of other U.S. securities decreased.

U.S. official reserve assets increased $3.2 billion, the same as in the fourth quarter, and foreign official assets in the United States decreased $8.8 billion, compared with a decrease of $7.0 billion.

The statistical discrepancy (errors and omissions in recorded transactions) was an inflow of $20.9 billion, compared with an inflow of $6.1 billion.

U.S. dollar in exchange markets

On a quarterly average basis, the trade-weighted value of the dollar declined 4 percent against the currencies of 10 industrial countries and less than 1 percent against the currencies of 22 OECD countries and 4 newly industrialized countries in the Far East (table C, chart 1). However, there were considerable differences in the dollar's movements within the quarter and against individual currencies.

The dollar remained relatively stable against the Japanese yen in the first half of the quarter. It appreciated strongly in the second half as two developments eroded confidence in the yen: First, the Bank of Japan failed to raise its official discount rate as expected after the February 18 elections, and second, prices on the Tokyo Stock Exchange declined sharply. Exchange market intervention by U.S. and Japanese monetary authorities and a large increase in the Japanese discount rate on March 20 were not immediately effective in stemming the dollar's advance. On a quarterly average basis, the dollar appreciated 3 percent.

The dollar depreciated 7 percent against the German mark on a quarterly average basis. Following pronounced depreciation toward the end of the fourth quarter, the dollar fluctuated only moderately against the mark in the first quarter. Through early February, continuing optimism about the West German economy and developments in Eastern Europe contributed to a moderate depreciation of the dollar. However, following the proposal of a currency union with East Germany on February 7, concerns about higher German inflation led to a moderate dollar appreciation, even though German interest rates were above comparable U.S. rates.

The dollar depreciated 4 percent against the British pound on a quarterly average basis. The dollar depreciated gradually for most of the quarter, then appreciated sharply after mid-March as concerns about slow growth and rising inflation in Britain intensified. The dollar appreciated 1 percent against the Canadian dollar; it depreciated 2 percent against the South Korean won and 1 percent against the Taiwan dollar.

Merchandise trade

The merchandise trade deficit decreased to $26.4 billion in the first quarter from $28.7 billion in the fourth quarter. Consistent with the trend of recent quarters, both exports and imports increased to record levels.

Exports.--Exports increased $4.3 billion, or 5 percent, to $96.0 billion; volume also increased 5 percent. Agricultural exports increased somewhat more rapidly than nonagricultural exports.

Nonagricultural exports increased $3.6 billion, or 4 percent, to $85.1 billion; volume increased 5 percent. Exports of capital goods accounted for $3.1 billion of the increase, reflecting the recovery of exports of civilian aircraft after a strike at a major U.S. producer in the fourth quarter. Exports of industrial supplies and materials increased $1.3 billion, and exports of consumer goods increased $0.7 billion. Exports of automotive products decreased slightly, as decreases in exports to Canada more than offset increases to other areas.

Agricultural exports increased $0.7 billion, or 7 percent, to $11.0 billion; volume increased 6 percent. The largest increases were in vegetables, fruits, and nuts and in meat and poultry. Exports of wheat increased, but those of corn decreased sharply as a result of lower shipments to the Soviet Union. Agricultural export prices were unchanged except for those of corn and cotton, which increased 2 percent each.

Since the first quarter of 1988, nonagricultural exports have grown steadily at an average rate of 2.9 percent per quarter (chart 2). Virtually all of the growth has been in volume, because nonagricultural export prices have risen only slightly (chart 4). Agricultural exports have grown at an average rate of 2.6 percent; however, quarter-to-quarter variation has been greater as a result of fluctuations in both volume and price (charts 3, 4).

Imports.--Imports increased $1.9 billion, or 2 percent, to $122.4 billion; volume was unchanged. Petroleum imports increased sharply, while nonpetroleum imports decreased slightly.

Nonpetroleum imports decreased $0.4 billion, or less than 1 percent, to $106.8 billion; volume decreased 1 percent. Imports of consumer goods decreased $0.8 billion, and imports of nonpetroleum industrial supplies and materials decreased $0.8 billion. Automotive imports increased slightly, as an increase in imports from areas other than Canada more than offset a decrease in imports from Canada. Imports of foods, feeds, and beverages also increased.

Petroleum imports increased $2.3 billion, or 17 percent, to $15.6 billion. Volume increased 6 percent, as refiners and distributors replenished inventories that were drawn down in the fourth quarter. Consumption, which had increased sharply in the fourth quarter as a result of unusually cold weather, decreased in the first quarter. Domestic production decreased slightly. The average price per barrel increased 10 percent, from $17.65 to $19.47, its highest level since the first quarter of 1986.

Since the first quarter of 1988, nonpetroleum imports have grown at an average rate of less than 1 percent per quarter; most of the limited increase has been in volume, because prices have changed little (charts 2, 5). Petroleum imports have grown at an average rate of 5.8 percent, but with considerable quarter-to-quarter variation as a result of fluctuations in both volume and price (charts 3, 5).

Balances by area.--Trade deficits with most major countries and areas decreased in the first quarter. As a result of increased exports and decreased imports, the deficit with Japan decreased $1.9 billion, to $10.4 billion, and the deficit with the newly industrialized countries in the Far East decreased $1.8 billion, to $4.6 billion. Increased exports led to a reduction in the deficit with Canada of $1.1 billion, to $1.6 billion, and to a shift in the balance with Western Europe of $1.4 billion, to a surplus of $0.4 billion. The deficit with Mexico increased $0.8 billion, to $1.2 billion, and that with the OPEC countries increased $0.8 billion, to $6.7 billion.

Service transactions

The balance on services was in surplus by $6.3 billion in the first quarter, compared with a surplus of $6.1 billion in the fourth quarter. Receipts increased $1.5 billion to $31.6 billion, reflecting increases in most major components. Payments increased $1.3 billion, to $25.3 billion; the rise in other private services accounted for most of the increase.

Travel receipts increased $0.3 billion, to $9.7 billion. Receipts from overseas more than accounted for the increase; receipts from Canada and Mexico decreased slightly. Travel payments decreased $0.1 billion, to $9.0 billion. A decrease in payments to Mexico more than offset an increase in payments overseas. Passenger fare receipts increased $0.3 billion, to $3.0 billion, and passenger fare payments increased $0.2 billion, to $2.3 billion.

Other transportation receipts were unchanged at $5.3 billion. An increase in freight receipts from higher exports was offset by a decrease in port expenditure receipts. Other transportation payments increased $0.2 billion to $5.5 billion. A decrease in freight payments from lower nonpetroleum imports was more than offset by higher port expenditure payments.

Receipts from other private services increased $0.2 billion, to $7.9 billion. Payments for other private services increased $1.1 billion, to $3.7 billion. Much of the increase was in net payments for reinsurance, that is, premium payments less losses recovered; losses recovered, which were unusually large in the fourth quarter, declined to more normal levels in the first quarter.

Transfers under U.S. military agency sales contracts increased $0.4 billion, to $2.3 billion. Technical services, missiles, and aircraft accounted for the increase. U.S. direct defense expenditures abroad were virtually unchanged at $3.7 billion.

Investment income

Net investment income was unchanged at $0.6 billion in the first quarter. Receipts of income on U.S. assets abroad decreased $1.6 billion, to $31.1 billion. Payments of income on foreign assets in the United States also decreased $1.6 billion, to $30.4 billion.

Direct investment income.--Receipts of income on U.S. direct investment abroad decreased to $12.9 billion from $13.7 billion. A shift from capital gains of $0.6 billion to capital losses of $0.1 billion for nonpetroleum affiliates accounted for most of the decrease. Operating income was virtually unchanged. Payments of income on foreign direct investment in the United States decreased to $1.9 billion from $2.7 billion. A shift from capital gains of $1.0 billion to capital losses of $0.3 billion more than offset a $0.6 billion increase in operating income.

Portfolio income.--Receipts of income on other private investment abroad decreased $0.9 billion, to $16.5 billion. Lower receipts on bank claims, reflecting a sharply lower level of claims outstanding as well as lower average yields, accounted for most of the decrease. Receipts of income on U.S. Government investment increased $0.2 billion, to $1.7 billion.

Payments of income on other private investment in the United States decreased $1.0 billion, to $19.1 billion. Payments on bank liabilities to foreigners decreased $0.7 billion, mostly as a result of lower average yields. Payments on corporate stocks and bonds held by foreigners also decreased. Payments of income on U.S. Government liabilities increased $0.1 billion, to $9.4 billion.

Unilateral transfers

Net unilateral transfers decreased $1.1 billion, to $3.5 billion, in the first quarter. A decline in U.S. Government grants accounted for the decrease. Fourth-quarter transactions had been boosted by large U.S. Government grants to Israel.

U.S. assets abroad

U.S. assets abroad decreased $29.5 billion in the first quarter, in contrast to an increase of $48.7 billion in the fourth. A large swing in bank claims accounted for much of the shift.

U.S. official reserve assets.--U.S. official reserve assets increased $3.2 billion, the same as in the fourth quarter. Most of the increase was in holdings of foreign currencies, due both to intervention purchases and earnings of interest. Transactions also included an extension of $1.3 billion in short-term credit to Mexico under currency swap arrangements.

Claims reported by banks.--U.S. claims on foreigners reported by U.S. banks decreased $45.7 billion, in contrast to an increase of $32.7 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 $30.6 billion, in contrast to an increase of $34.4 billion. Large reductions in claims on banks in most foreign countries and areas reflected a widespread decline in demand for U.S. bank credit.

Claims on nonbank foreign borrowers decreased $11.7 billion, in contrast to an increase of $1.4 billion. Most of the decrease was in claims on borrowers in Latin America. In February, the Government of Mexico and its foreign creditor banks agreed on a program to restructure Mexico's external debt. As part of the program, U.S. banks exchanged $3.0 billion in claims for Mexican Government bonds collateralized by U.S. Treasury bonds. Other bank claims on Mexico decreased $3.5 billion. In unrelated transactions, claims on Brazil decreased $2.0 billion, and claims on Argentina decreased $1.3 billion.

Banks' own claims payable in foreign currencies were virtually unchanged in the first quarter, after decreasing $5.6 billion in the fourth. Banks' domestic customers' claims decreased $3.3 billion, in contrast to an increase of $2.4 billion.

Foreign securities.--Net U.S. purchases of foreign securities were $4.9 billion, compared with $4.1 billion. Net purchases of bonds more than offset net sales of stocks.

Net purchases of foreign bonds were $4.9 billion, compared with $0.3 billion. New issues of foreign bonds in the United States increased $4.0 billion to $5.8 billion. Smaller rises in U.S. bond rates than in foreign rates encouraged the issuance of bonds in the United States, particularly by Canada and the World Bank. In addition, Mexico exchanged bonds valued at $2.5 billion for a portion of its outstanding bank debt as part of the debt restructuring program mentioned previously. Redemptions were unchanged at $1.3 billion. Net purchases of outstanding bonds were $0.4 billion, in contrast to net sales of $0.3 billion.

Transactions in foreign stocks shifted to net sales of $0.1 billion from net purchases of $3.8 billion, partly in response to substantial price declines in most foreign stock markets. Net sales of Japanese stocks, prompted by both a record decline in Japanese stock prices and a marked depreciation of the yen, accounted for more than one-half of the shift. Net purchases of German and Canadian stocks partly offset the net sales of Japanese stocks. Interest in German stocks was sustained by that country's strong economy and the appreciation of the mark.

Direct investment.--Net outflows for U.S. direct investment abroad were $7.6 billion, compared with $8.8 billion. A large shift to intercompany debt inflows more than offset a shift to equity capital outflows and an increase in reinvested earnings. Intercompany debt shifted from outflows of $6.6 billion to inflows of $0.5 billion. The shift reflected the partial repayment of a few unusually large loans made in the fourth quarter to affiliates in the United Kingdom and the Caribbean. Equity capital shifted from inflows of $2.0 billion to outflows of $1.8 billion; a $1.0 billion purchase of petroleum properties from a British company and the absence of two large sales that had dominated the fourth quarter were largely responsible. Reinvested earnings increased $2.1 billion, to $6.3 billion.

Foreign assets in the United States

Foreign assets in the United States decreased $27.5 billion in the first quarter, in contrast to an increase of $69.3 billion in the fourth. A large swing in bank liabilities, greatly reduced inflows for foreign direct investment in the United States, and much lower net purchases of U.S. securities other than U.S. Treasury securities accounted for the shift.

Foreign official assets.--Foreign official assets in the United States decreased $8.8 billion, compared with a decrease of $7.0 billion (table B). Assets of industrial countries decreased $8.3 billion, compared with a decrease of $2.3 billion. The decrease in the first quarter may have partly reflected intervention sales of dollars in February and March. Assets of OPEC members increased $3.0 billion, compared with a decrease of $1.4 billion. Assets of other countries decreased $3.5 billion, compared with a decrease of $3.4 billion; the first-quarter decrease included a partly offsetting purchase by Mexico of $3.0 billion of U.S. Treasury bonds as collateral for bonds exchanged for bank debt.

Liabilities reported by banks.--U.S. liabilities reported by U.S. banks, excluding U.S. Treasury securities, decreased $28.1 billion, in contrast to an increase of $36.7 billion. Banks' own liabilities payable in dollars decreased $35.9 billion, primarily because the sharp drop in foreign demand for U.S. bank credit lowered requirements for foreign funds. Most of the decrease occurred in January; liabilities increased somewhat in March as banks resumed drawing on foreign funds in order to increase lending in the United States. Repayment in the first quarter of unusually large borrowings by Japanese-owned banks in the fourth quarter also, contributed to the decrease. Banks' own liabilities payable in foreign currencies were almost unchanged in the first quarter, after decreasing $6.2 billion in the fourth. Banks' custody liabilities increased $7.7 billion, after having been unchanged in the fourth quarter.

U.S. Treasury securities.--Net foreign sales of U.S. Treasury securities were $0.9 billion, in contrast to net purchases of $5.7 billion. Marketable bonds and notes largely accounted for the shift to net sales; net purchases of short-term Treasury obligations increased slightly. Investors in Canada and Japan reduced their holdings of Treasury securities, while investors in the United Kingdom increased them at a much slower rate.

Other U.S. securities.--Foreign acquisitions of U.S. securities other than U.S. Treasury securities were $2.7 billion, compared with $10.8 billion. Net purchases of corporate and U.S. agency bonds more than offset net sales of stocks.

Net foreign purchases of U.S. corporate and agency bonds were $6.1 billion, compared with $12.5 billion. U.S. corporations lowered new bond issues abroad to $3.1 billion from $4.6 billion, as foreign bond yields rose faster than bond yields in the United States. For the same reason, foreign investors reduced net purchases of agency and other outstanding bonds to $3.0 billion from $7.9 billion.

Foreign investors sold $3.4 billion of U.S. stocks, following net sales of $1.7 billion. The relatively low profits reported by U.S. corporations for 1989 contributed to the higher sales. Japanese investors shifted from net purchases of $1.2 billion in the fourth quarter to net sales of $0.7 billion in the first. Western European and Canadian investors, who had sold $2.9 billion of U.S. stocks in the fourth quarter, sold $1.7 billion of U.S. stocks in the first.

Direct investment.--Net inflows for foreign direct investment in the United States were $7.6 billion, compared with $21.5 billion. A sharp decrease in equity capital inflows (from exceptionally large inflows in the fourth quarter) and a shift to intercompany debt outflows largely accounted for the decrease. Equity capital inflows were $10.0 billion, compared with $15.7 billion. Although inflows from most countries and areas decreased, nearly two-thirds of the decrease was in inflows from Japan. Intercompany debt shifted to outflows of $1.2 billion from inflows of $6.4 billion. The shift reflected partial repayments of loans extended by foreign parents in 1989 for the acquisition of U.S. businesses. Reinvested earnings were negative because dividends paid to shareholders exceeded earnings.

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. Several major improvements are introduced this year.

* Services have been redefined to exclude investment income, and services and investment income have been given positions of equal importance in tables 1 and 10. Corresponding changes have been made to the presentation of partial balances in tables 1 and 10.

* Transfers of goods and services under U.S. military grant programs, net (previously shown in line 15) have been combined with transfers under U.S. military agency sales contracts in new line 4, and U.S. grants of goods and services, net (previously shown in line 30) have been combined with U.S. Government grants in new line 30.

* Capital gains and losses associated with currency translation adjustments have been removed from U.S. direct investment income and from U.S. direct investment capital flows. These translation adjustments are more appropriately classified as valuation adjustments to the direct investment position than as income and capital flows in the international accounts.

* Additional work has been completed on the services estimates introduced last June. Refinements were made to travel and passenger fare receipts and payments and to education services receipts and payments. Revisions to noninterest income earned by banks and to direct defense expenditures abroad were extended to earlier years.

* Information from the U.S. Treasury Department's benchmark survey of foreign portfolio investment in the United States for 1984 has been incorporated. The information resulted in increases to previous estimates of U.S. Government income payments and of stock dividends paid to foreigners.

* The definition of principal end-use categories for mechandise exports has been changed to include reexports. Reexports--that is, exports of foreign merchandise--are now assigned to detailed end-use categories in the same manner as exports of domestic merchandise.

Table 1 presents annual estimates of U.S. international transactions for 1960-89 and quarterly estimates (both unadjusted and adjusted for seasonal variation) for 1978-89. Table 2 presents annual merchandise trade estimates for 1978-89 and quarterly estimates for 1988-89. Tables 3-10 present account and area detail for annual estimates for 1987-89 and quarterly estimates for 1988-89. Table 3 on selected international service transactions has been expanded to include additional detail on royalties and fees and on insurance transactions. Tables F and G present updated estimates for the detailed presentation of other private services transactions and for royalties and license fee transactions with unaffiliated foreigners, respectively.

Seasonal adjustment factors--for the current-account items that show seasonal patterns, for repayments on U.S. Government credits and other long-term assets, and for U.S. direct investment abroad--were recalculated by extending through 1989 the period used to derive the factors. For merchandise exports, seasonal factors were recalculated for 1978-89 to account for the assignment of reexports--that is, exports of foreign merchandise--to detailed end-use commodity categories in the same manner as exports of domestic merchandise.

Redefinition of services

The term "services" has been redefined to exclude investment income, and the presentation in tables 1 and 10 has been changed. Beginning with this presentation, services are defined to include only services such as travel, other transportation, and business, professional, and technical services. Investment income is no longer considered as part of services and is given a position of importance equal to services in tables 1 and 10. This redefinition aligns the terms more closely with general usage, and is consistent with work that is underway to enhance the harmonization of classification systems of foreign sector accounts contained in the International Monetary Fund's Balance of Payments Manual and the United Nation's System of National Accounts.

The redefinition of services necessitates corresponding changes in the partial balances that appear as memoranda items at the end of the tables 1 and 10. The four basic building blocks of the balance on current account are now merchandise, services, investment income, and unilateral transfers. Thus, the partial balances are as follows: Balance on merchandise trade; balance on services (redefined); balance on investment income; and unilateral transfers. The components are combined into the balance on goods, services, and income and the balance on current account. The balance on goods, services, and income is equivalent to the previously defined balance on goods and services. Both are equivalent to net exports of goods and services in the national income and product accounts (after adjustments for a few conceptual differences between the two sets of accounts). The revised partial balances are presented on an annual basis from 1960 to the present and on a quarterly basis from 1978 to the present in table 1.

Memoranda items previously presented in lines 71 and 72 have been dropped. These items related to calculation of the official settlements balance, which BEA has not published for some time. The balance on goods, services, and remittances has also been dropped.

Reclassification of U.S. military grants

In another change to tables 1 and 10, transfers of goods and services under U.S. military grant programs, net (previously shown in line 15) have been combined with transfers under U.S. military agency sales contracts in new line 4, and U.S. military grants of goods and services, net (previously shown in line 30) have been combined with U.S. Government grants in the new line 30. The changes combine various U.S. Government military exports, whether by sale or by gift, in new line 4, and combine all U.S. Government grants in new line 30. The change affects the balance on services (redefined) and the balance on goods, services, and income, but the balance on current account is unaffected. The amounts shifted to new lines 4 and 30 averaged $354 million annually in 1976-85 and $67 million annually in 1985-89. This change in classification has been taken back to 1960.

Removal of currency translation adjustments from direct investment

Capital gains and losses associated with currency translation adjustments--that is, gains and losses that arise because of changes from the end of one accounting period to the next in exchange rates applied in translating affiliates' assets and liabilities from foreign currencies into dollars--have been removed from U.S. direct investment abroad income receipts and from the reinvested earnings component of U.S. direct investment abroad capital, where the adjustments were entered with the opposite sign from that in the current account.

In principle, currency translation adjustments should be removed from both U.S. direct investment abroad and foreign direct investment in the United States. However, for now, because of data limitations discussed below, the adjustments were removed only from U.S. direct investment abroad.

U.S. companies must report data in dollars on the direct investment surveys conducted by BEA. Companies are instructed to follow generally accepted accounting principles which, for translation of affiliate accounts into dollars, are contained in Financial Accounting Standards Board Statement No. 52 (FASB-52). Until now, translation adjustments that resulted from applying FASB-52 were summed with other capital gains and losses and included in direct investment income and direct investment capital.

Translation adjustments arise when U.S. parent companies translate foreign affiliates' assets and liabilities into dollars. They are not reflected in foreign affiliates' accounts, stated in foreign currencies, and are not available for distribution. However, translation adjustments are a component of the change in the value of direct investment, measured in dollars, from the perspective of the U.S. parent. Thus, BEA's removal of these gains and losses from direct investment income and capital recognizes that they are more appropriately classified as valuation adjustments to the U.S. direct investment position abroad rather than as income and capital flows in the international accounts.

Capital gains and losses other than currency translation adjustments continue to be included in direct investment income and capital. Such gains and losses are included in either affiliates' net income or taken directly to retained earnings, are reflected in affiliates' accounts measured in foreign currencies, and are generally available for distribution as dividends.

Implementation of the change.--The absence of separate data on translation adjustments affected implementation of the revised treatment of translation adjustments. Only data on capital gains and losses included in affiliates' net income, and, separately, gains and losses taken directly to equity, were available. The latter included, but did not separately identify, translation adjustments.

For U.S. direct investment abroad, data were revised back through 1982, the year that many U.S. companies began using FASB-52 to translate affiliate accounts. Based on knowledge of U.S. accounting practices, discussions with reporting companies, and inspection of the data, BEA was confident that, in the historical data, translation adjustments accounted for by far the largest portion of total capital gains and losses taken directly to equity. Thus, all capital gains and losses taken to equity were assumed to be translation adjustments and were removed from direct investment income and capital flows. The impact on published estimates is shown in table H.

Beginning in the second quarter of 1990, BEA's quarterly report forms for U.S. direct investment abroad will identify translation adjustments separately from other capital gains and losses taken directly to equity. From then on, only translation adjustments, not all capital gains and losses taken to equity, will be removed from direct investment income and capital flows.

For foreign direct investment in the United States, no revisions are being made now. Translation adjustments do arise on the books of U.S. affiliates that have foreign affiliates, themselves. However, evidence from BEA's recently completed 1987 benchmark survey of foreign direct investment in the United States suggests that the amounts are quite small.

For 1982-86, BEA was unable to isolate these small amounts from other reported capital gains and losses taken to equity. For 1987 forward, data on capital gains and losses from the benchmark survey will be reviewed over the next year. If, in the course of that review, translation adjustments can be isolated, they will be removed from foreign direct investment income and capital flows, and revised estimates will be presented in the June 1991 SURVEY.

Beginning in the first quarter of 1991, BEA's quarterly report forms for foreign direct investment in the United States will identify translation adjustments separately from other capital gains and losses taken directly to equity. From then on, translation adjustments will be removed from foreign direct investment in the United States income and capital flows in a manner parallel to that for U.S. direct investment abroad.

Revised estimates of services

Several of the services estimates that were introduced last June have been refined or extended back to earlier years.

Travel and passenger fares.--Refinements have been made to the overseas travel and passenger fare estimates for 1984:II-1988:III that were introduced last June. New source data have been incorporated for 1988:IV-1989:III. Estimates for 1989:IV-1990:I are extrapolations. A methodological change was made to travel payments for all quarters to boost the number of travelers in geographical areas or countries that were underrepresented in the survey upon which the estimates are based. The average annual revisions were as follows: Travel receipts, -$198 million; passenger fare receipts, -$11 million; travel payments, $734 million; and passenger fare payments, $69 million. Limitations of these estimates remain much the same as were discussed in the June 1989 SURVEY.

Education.--Refinements have been made to estimates introduced last June for education services for 1981-89 to include a more accurate count of the number of students for both exports and imports. Updated parameters and source data were incorporated for 1988-89. The average annual revision for exports was an increase of $20 million and for imports was a decrease of $5 million.

Noninterest income.--Noninterest income earned by banks, which was reclassified from portfolio income receipts to other private service receipts for 1986-89 last June, has now been reclassified for 1978-1985; 1978 is the first year for which noninterest income is available. The average annual revision was $1,445 million.

Direct defense expenditures abroad.--Direct defense expenditures abroad have been reestimated for 1984-86 to correct for an underestimate of military purchases of petroleum from sources abroad. The correction has been carried forward through 1989. The average annual revision was $442 million.

Information from U.S. Treasury benchmark survey

Limited information from the U.S. Treasury Department's benchmark survey of foreign portfolio investment in the United States for 1984 is now available.

U.S. Government income payments.--Based on that survey, foreign holdings of U.S. Treasury marketable bonds of U.S. Treasury marketable bonds were revised up $12.6 billion in 1984, and holdings of U.S. agency issues were revised up $2.1 billion in 1984. Estimates of holdings for 1985-89 were also revised up by the same amount. Related U.S. Government income payments were revised up $1.4 billion in 1984. The average annual upward revision to income payments in 1985-89 was $1.6 billion. The estimates for income payments have been extrapolated back to 1980 in proportion to trading in bonds in each year.

Dividend payments.--Details from the Treasury survey also suggested an underestimate of dividend payments on U.S. stocks. Therefore, estimates of dividend payments to foreigners were revised up $736 million in 1984. The annual upward revision in dividend payments rose to $2.7 billion in 1989. The estimates have been extrapolated back to 1980 in proportion to trading in U.S. stocks in each year.

Previous estimates were based on a direct measure of dividend payments obtained from the 1978 benchmark survey and brought forward by yields multiplied by changes in trading in U.S. stocks. Because no direct measure of income is available from the 1984 survey or from the 1989 survey (in progress), a change in methodology was introduced to limit underestimates in future years and to reflect current conditions more accurately. For 1984 and later years, the dividend yield on the Standard and Poor's 500 stock index is applied to positions outstanding developed from the Treasury survey by BEA to derive dividend payments to foreigners.

Improvements to merchandise trade

Canada.--Beginning in the first quarter of 1990, U.S.-compiled exports to Canada are replaced with the counterpart Canadian import statistics, and Canadian-compiled exports to the United States are replaced with the counterpart U.S. import statistics. This exchange of statistics between the Census Bureau and Statistics Canada eliminates the need for many of the U.S. balance of payments adjustments for timing, coverage, and valuation previously made to the Census-basis data.

For 1988 and 1989, balance of payments adjustments of $300 million and $535 million, respectively, were made to Census-basis data for the understatement of imports of crude petroleum from Canada.

Reexports.--A change has been made to the definition of principal end-use export categories. Reexports--that is, exports of foreign merchandise--which were previously shown separately in table 2, have now been assigned to detailed end-use categories in the same manner as exports of domestic merchandise. In 1989, reexports totaled $14.3 billion. The growth of reexports in recent years largely reflects expansion of manufacturing activities within foreign trade zones, particularly the manufacture of capital goods and consumer goods. Revised end-use commodity export series have been prepared for 1978-89; seasonal adjustment factors have been reestimated. [Charts 1 to 6 Omitted] [Tabular Data A to H Omitted]

(1)Quarterly estimates of U.S. current- and capital-account components are seasonally adjusted when significant seasonal patterns are present.
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Title Annotation:includes related article on footnotes to U.S. international transactions tables 1-10a
Author:Nicholson, Robert E., Jr.
Publication:Survey of Current Business
Date:Jun 1, 1990
Words:5863
Previous Article:International investment position: component detail for 1989.
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