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U.S. international transactions, fourth quarter and year 1987.

U.S. International Transactions, Fourth Quarter and Year 1987

Fourth Quarter 1987

THE U.S. currenct-account deficit decreased to $39.0 billion in the fourth quarter from $43.4 billion in the third.(1) The merchandise trade deficit was virtually unchanged at $40.2 billion; service transactions shifted to net receipts of $5.6 billion from net payments of $0.2 billion; and net unilateral transfers were $4.4 billion compared with $2.9 billion.

1. Quarterly estimates for U.S. current- and capital-account components are seasonally adjusted when statistically significant seasonal patterns are present.

Merchandise trade. -- Merchandise imports increased $3.8 billion, or 4 percent, to a record $109.2 billion. Volume and prices each increased 2 percent. Nonpetroleum imports increased $5.3 billion, or 6 percent, to $98.1 billion. Volume increased 5 percent and prices 1 percent. The largest increases in value were in nonpetroleum industrial supplies and materials, $2.4 billion, or 13 percent; capital goods, $1.4 billion, or 6 percent; and automotive products, $0.9 billion, or 4 percent. Within industrial supplies, nonmonetary gold increased $0.7 billion, or 8 percent, partly for minting U.S. commemorative coins. Within capital goods, business machines increased $0.5 billion, or 10 percent. Within automotive products, passenger cars from Canada increased $1.0 billion, or 19 percent. Passenger cars from areas other than Canada decreased $0.7 billion, or 7 percent, due entirely to a decrease from Japan. Petroleum imports decreased $1.5 billion, or 12 percent, to $11.1 billion. Both price and volume decreased. The average price per barrel decreased to $17.39 from $18.06, and the average number of barrels imported daily decreased to 6.99 million from 7.65 million.

Merchandise exports incresed $3.9 billion, or 6 percent, to a record $69.1 billion. Volume increased 5 percent and prices 1 percent. Nonagricultural exports, to $61.3 billion. Volume increased 8 percent. The largest increases in value were in capital goods, $1.3 billion, or 6 percent; automotive products, $1.2 billion, or 18 percent; and nonagricultural industrial supplies and materials, $1.1 billion, or 7 percent. Within capital goods, business machines increased $0.5 billion, or 10 percent, and other capital equipment increased $0.8 billion, or 4 percent. Within automotive products, exports to Canada increased $1.0 billion, or 21 percent. Agricultural exports decreased $0.6 billion, or 7 percent, to $7.7 billion. Soybeans decreased $0.5 billion, or 32 percent; corn, $0.2 billion or 30 percent; and wheat, $0.1 billion, or 18 percent. The average price of wheat increased 3 percent, and corn, 2 percent. The average price wf soybeans was unchanged.

Service transactions. -- Net service transactions shifted to net receipts of $5.6 billion from net payments of $0.2 billion in the third quarter. Among major components, receipts of income on U.S. direct investment abroad increased to $15.6 billion from $9.9 billion, largely the result of exchange rate related gains due to the decline in the value of the dollar. Payments of income on foreign direct investment in the United States decreased to $2.1 billion from $4.2 billion, reflecting losses of European and Canadian insurance companies from declines in the value of their securities portfolios, losses of banking affiliates, and a decline in operating earnings of Japanese automotive affiliates in the United States. Receipts of income on other private investment increased to $12.9 billion from $11.4 billion, and payments of income on other private investment increased to $14.2 billion from $12.2 billion. Both increases were due partly to higher interest rates.

Foreign visitors spent $4.0 billion for travel in the United States, up 1 percent. Receipts from overseas visitors increased less than 1 percent to $2.5 billion; receipts from Canada, 1 from Mexico, 1 percent to $0.6 billion. U.S. travelers spent $5.3 billion in foreign countries, up 2 percent. Payments for overseas travel decreased 2 percent to $3.3 billion; payments to Canada increased 15 percent to $0.8 billion due to higher average expenditures; and payments to Mexico, 7 percent to $1.1 billion due to stepped-up travel in the Mexican interior.

Other transportation receipts were $4.3 billion, up 3 percent, due to a rise in ocean freight receipts. Other transportation payments were $5.2 billion, up 4 percent, due to a rise in air freight payments from higher import volume and higher freight rates.

Transfers under U.S. military agency sales contracts decreased $0.6 billion to $2.2 billion. As in the third quarter, major aircraft and equipment delivery programs continued to be completed or reduced. Direct defense expenditures abroad were inchanged at $3.6 billion.

Net unilateral transfers. -- Net unilateral transfer were $4.3 billion compared with $2.9 billion. Pursuant to legislation of all the cash grants for Israel were paid as soon as funds were appropriated by Congress in the first quarter of the new fiscal year.

U.S. assets abroad. -- U.S. assets abroad increased $36.9 billion compared with $27.2 billion in the third quarter. U.S. official reserve assets decreased $3.7 billion following virtually no change. Intervention sales of German marks and Japanese yen accounted for $3.3 billion of the decrease.

U.S. claims on foreigners reported by U.S. banks increased $23.3 billion compared with $20.1 billion. In the interbank market, foreign-owned banks increased their claims $14.9 billion; they advanced funds to their own foreign officers in October following the stock market collapse, and they advanced funds in December to meet moderate yearend demand in the Eurodollar market. In contrast, U.S.-owned banks reduced their claims on foreigners $2.6 billion, as relatively few funds were advanced to their own foreign officers either after the collapse or at yearend and as foreigners repaid most of the large quarter-end funds advanced in September. Claims payable in foreign currencies increased $9.6 billion; more than one-half the total was accounted for by claims on Japan.

Net U.S. purchases of foreign securities were $1.8 billion compared with $0.9 billion. Net U.S. sales of stocks increased to $3.9 billion from $0.4 billion, as equity prices in most major markets abroad dropped 20-30 percent. Sales of Japanese stocks accounted for over 70 percent of fourth-quarter sales; sales of Western European stocks accounted for 20 percent. Sales of stocks in the United Kingdom were more than offset by the purchase by U.S. underwritiers of $1.0 billion in the shares of British Petroleum. In contrast, net U.S. purchases of bonds increased to $5.5 billion from $1.3 billion. Following the stock market collapse, and with the sharper drop in U.S. bond rates than Eurobond rates, foreign governments and international financial institutions placed $3.7 billion in new issues in the United States. In transactions in outstanding bonds, net U.S. purchases were $2.6 billion compared with $1.5 billion. The step-up was more than accounted for by purchases of Western European bonds, including British gilt-edged bonds, as investors sought high quality, fixed-rate instruments with relatively high interest rates.

Net outflows for U.S. direct investment abroad were $16.4 billion compared with $6.2 billion. Both reinvested earnings (largely capital gains) and equity capital increased.

Foreign assets in the United States -- Foreign assets in the United States increased $58.9 billion compared with $67.4 billion in the third quarter. Foreign official assets, increased a record $19.9 billion, following a $0.4 billion increase. Dollar assets of Western European countries and Japan increased strongly, reflecting intervention purchases of dollars. Dollar assets of OPEC members decreased, and dollar assets of other countries increased (table B).

Table: Table B. -- Selected Transactions with Official Agencies

(Millions of dollars)
 TABLE: 1986 1997 Change:
 TABLE: Line 1986 1987(p) Change 1987
 TABLE: 1986-87 I II II IV I II III(r) IV(p) III-IV


(r) Revised

(p) Preliminary.

SURVEY OF CURRENT BUSINESS

U.S. liabilities to private foreigners and international financial institutions reported by U.S. banks, excluding U.S. Treasury securities, increased $3.2 billion compared with $44.4 billion. Foreign-owned banks accounted for all of the $25.1 billion increase in liabilities in the interbank market; the increase funded strong loan expansion at agencies and branches of foreign banks in the United States and in the Eurodollar market. In contrast, U.S.-owned banks did not acquire any funds from abroad in the fourth quarter compared with moderate amounts in the third. Liabilities payable in foreign currencies increased $9.7 billion compared with $7.0 billion.

Net foregin purchases of U.S. Treasury securities were $0.6 billion compared with net sales of $2.9 billion.

Net foreign sales of U.S. securities other than U.S Treasury securities were $4.9 billion compared with net purchases of $12.7 billion. New bond issues abroad by U.S. corporations were $3.1 billion compared with $6.3 billion. Foreigners sold $.02 billion net in outstanding U.S. bonds, a shift from net purchases of $1.4 billion.

Transactions in U.S. stocks shifted to net foreign sales of $7.8 billion from net purchases was sold in billion. A record $6.7 billion was sold in November following the 25-percent drop in stock prices. Net sales were more than accounted for by Western European investors. Japanese investors continued as small net purchases of stocks (mostly in October), although at sharply reduced levels from those in the first half of the year.

Net inflows for foreign direct investment in the United States were $11.1 billion compared with $12.3 billion. Equity capital and intercompany debt flows remained strong.

The statistical discrepancy (errors and omissions in reported transactions) was a net inflow of $17.0 billion compared with $3.2 billion.

U.S. dollar in exchange markets. -- In the fourth quarter, the dollar depreciated 9 percent on a trade-weighted quarterly average basis against the currencies of both 10 industrial and 22 OECD countries. The dollar depreciated most against the German mark and British pound, 8 percent each, and least against the Canadian dollar, 1 percent (table C, chart 2). The dollar even before the collapse in equity prices and the sharp drop in interest rates that followed. Although interest rate differentials in favor of U.S. assets increased with the rebound in U.S. rates in November and early December, the dollar depreciated sharply in those two months. The depreciation occurred despite coordinated interest rate reductions among industrial countries and extensive exchange market intervention purchases of dollars.

The Year 1987

U.S. dollar in exchange markets

The U.S. dollar depreciated 17 percent from December 1986 to December 1987 on a trade-weighted average basis against the currencies of 10 industrial countries and 9 percent against the currencies of 22 OECD countries.

The persistence of the large merchandise trade deficit was a major contributing factor to dollar depreciation. Relatively rapid expansion in the United States contributed to the rise in imports. Relatively slow expansion in most leading foreign countries, particularly in the first half of the year, limited U.s. export expansion. Rising interest rate differentials in favor of U.S. assets for much of the year, in contrast to declining differentials in 1986, did little to halt the dipreciation.

Temporary stability against most European currencies and the Japanese yen was achieved following an agreement among authorities of six industrial countries in late February to maintain exchange rates close to their prevailing levels. Substantial exchange market intervention purchases of dollars in March and April were necessary to maintain those levels. A sharp increase in U.S interest rates in April and May, while foreign rates were unchanged, probably contributed to a strenthening of the dollar through early August. A flare-up of hostilities in the Persian Gulf in June and July also may have contributed.

In mid-August, dollar depreciation resumed following the release of unfavorable U.S. merchandise trade data for June and amid renewed inflationary concerns. Another sharp rise in U.S. market interest rates in September and October, accompanied by a rise in the U.S. discount rate, temporarily interrupted the dollar's depreciation. A restatement of the February commitment by major industrial countries to foster exchange rate stability also helped the dollar.

However, selling pressure on the dollar intensified toward the end of October with the sharp drop in interest rates that followed in stock market collaspe of October 19. Also, there was widespread speculation that the commitment to foster exchange rate stability by major industrial countries was ineffective, given the sharp drop in exchange rates that had already occurred. Subsequent intervention purchases and central bank rate cuts in most European countries had little effect and the dollar fell to record owns by yearend.

The dollar also depreciated against the currencies of most newly industrialized countries in Southeast Asia. From December 1986 to December 1987, the dollar was unchanged against the Hong Kong dollar, depreciated 8 percent against both the Singapore dollar and Korean won, and depreciated 19 percent against the Taiwan dollar.

Merchandise trade

The U.S. merchandise trade deficit was $159.2 billion in 1987 compared with $144.3 billion in 1986 (tables D, E). Imports increased $41.3 billion, or 11 percent to $410.0 billion; volume increased 5 percent. Nonpetroleum imports increased to $367.7 billion from $334.9 billion and petroleum imports increased to $42.3 billion from $33.8 billion. The 10-percent increase in the value of nonpetroleum imports followed increases of 16 percent in 1986 and 5 percent in 1985. Exports increased $26.5 billion, or 12 percent, to $250.8 billion; volume increased 12 percent. Nonagricultural exports increased to $221.3 billion from $197.3 billion, and agricultural exports increased to $25.9 billion from $27.0 billion. The 12-percent increase in the value of nonagricultural exports followed increases of 6 percent in 1986 and 3 percent in 1985.

Dollar depreciation, which began to affect trade developments in mid-1986, had a more pronounced impact in 1987. The price competitiveness of U.S. goods in exports markets improved as the foreign currency cost of U.S. manufactured exports decreased 2 percent (following decreases of 3 percent and 7 percent in 1986 and 1985, respectively). In contrast, a weighted average of producer prices for manufactured products in major industrial countries abroad increased 5 percent (following no increases in either 1986 or 1985). The price competitiveness of U.S. goods at home also improved as the dollar cost of U.S. imports of manufactured goods increased 10 percent (following increases of 9 percent and 4 percent in 1986 and 1985, respectively), compared with a 4-percent increase in U.S. producer prices (following a 3-percent decline in 1986 and no increase in 1985) (chart 3).

A more detailed look at prices of imports and exports for major end-use categories indicates considerable diversity. Dollar prices of most imports, which rose significantly in 1986, rose again by large amounts in 1987, especially capital goods, counsumer goods (nonfood), and autos (table F). These three categories accounted for 65 percent of import trade in 1987. Other import prices -- for example, petroleum and industrial supplies - also increased, as raw materials, nonfood commodities, and metals prices rose in world markets.

Price increases for exports in 1986 and in 1987 reflected only small increases in production costs for capital goods, consumer goods, and autos, which accounted for 50 percent of export trade. Prices of industrial supplies and materials, determined sharply. When converted into foreign currency terms, prices in most categories declined significantly (table G).

The impact of the lower foreign currency cost of U.S. exports has occurred in about the same timeframe and in the same magnitude as would have been expected from historical experience. The response of imports to higher dollar prices also has been experience, but the rise in import prices have been limited relative to the toal depreciation of the dollar since 1985.

Three factors may partly explain the limited rise in import prices in 1986-87 relative to total depreciation. First, profit margins of foreign exporters have absorbed much of the impact of movements in exchange rates and higher costs. These margins had been inflated by dollar appreciation in 1980-84, and foreign exporters in 1985--87 chose to hold down price increases to U.S. consumers to maintain market shares in the U.S. market despite higher costs. Strong U.S. demand may have sustained foreign sales somewhat or slowed their decline, thereby partly offsetting the negative impact of lower margins on foreign profits. Second, dollar depreciation has reduced produciton costs of many countries exporting to the United States, particularly for major foreign industrial importers of petroleum and other raw materials denominated in dollars. Some of this advantage was negated by the rise in prices of raw materials, nonfood commodities, and metals in 1987. Third, only in some commodity categories have imports prices increased significantly relative to domestic prices. For capital goods, for example, import prices have not risen greatly relative to domestic prices, and there has been relatively little slowing in capital goods imports. For automotive products, the difference between the rise in import prices and domestic prices has been greater, and prices have played a more significant role in slowing these imports. For consumer durables, the difference in relative prices has been the largest of these three categories.

Two additional factors are relevant in analyzing the impact of import prices on the value of imports. First, the dollar's depreciation against the newly industralized countries in Asia has been much less than against most major industrial countries. When the import trade of these countries is combined with that of Canada and Mexico, most of which is denominated in U.S dollars and therefore should not be expected to be much affected by exchange rate changes, these three areas account for over 35 percent of U.S. imports. Second, some of the depreciation of 1986 and much of that in 1987 has yet to have an impact.

Relative growth rates in real domestic demand also exerted an important influence on U.S. trade in 1987. The strength of domestic demand continued to boost expenditures on U.S. imports as well as domestically produced goods. Restained growth in domestic demand abroad limited the expansion of U.S. exports, although growth accelerated in the last half of the year, both in Western Europe and Japan.

Imports. -- Nonpetroleum imports increased $32.8 billion in 1987, or 10 percent, to $367.7 billion, compared with a 16-percent increase. Volume increased 5 percent, compared with a 13-percent increase. The slowing was evident in all major commodity categories except capital goods.

Capital goods increased $12.2 billion, or 16 percent, to $87.7 billion, compared with an 18-percent increase in 1986. Capital goods from Western Europe and Japan, against whose currencies the dollar has depreciated significantly, slowed to an 8-percent increase from a 19-percent increase and to a 16-percent increase from a 22-percent increase, respectively. Capital goods from the newly industrialized countries in Asia (Hong Kong, Korea Singapore, and Taiwan), against whose currencies the dollar has depreciated much less, accelerated to a 29-percent increase from a 23-percent increase. Within capital goods, most commodity categories continued to increase at about the same pace as in 1986, in spite of significant price increases. Business and office machines, however, increase at a considerably faster pace; import prices of business machines have fallen rapidly over the past 2 years. (2)

2. The fixed-weight deflator used to deflate business purchases of office, computing, and accounting machinery incorporates BEA's quality-adjusted measure of computer prices. (See "Improved Deflation of Purchases of Computers" in the March 1986 SURVEY OF CURRENT BUSINESS for a description of BEA's quality-adjusted measure.) The deflator has two shortcomings specific to its use in deflating imports. First, it measures mostly the change in the prices of domestically produced business machines, not the prices of imported machines. This shortcoming can be important to the extent that changes in the value of the dollar against the currencies of he supplying countries are reflected in the price of imports. Because the dollar has depreciated since early 1985, use of this deflator would tent to understate prices of these imports. About one-half of the imports in the business machines category in recent years has come from Japan; the remainder is mainly from Signapore and Korea. Second, the deflator measures the change in the prices of the mix business machines purchased from U.S. manufactures, which may differ from the mix of imports. For example, computer processors have a much large wieght in purchases from domestic manufacturers than in imports. It is not yet clear whether the difference in the mix would tend to understate or overstate the constant-dollar estimates. Until a more adequate deflator is available, BEA, will continue to use the existing deflator.

Consumer goods (nonfood) increased $9.4 billion, or 12 percent, to $87.2 billion, compared with a 19-percent increase. Imports of durables from

Table: Table D. -- Selected Balances on U.S. International Transactions

(Millions of dollars, quarters seasonally adjusted)
 TABLE: 1985 1986 1897 1987
 TABLE: I (r) II (r) III (r) IV (r)


(r) Revised.

(p) Preliminary.

Table: Table E. -- U.S. Merchandise Trade, Current and Constant (1982) Dollars

(Balance of payments basis, millions of dollars, quarters seasonally adjusted)
 TABLE: Current dollars Current dollars
 TABLE: 1985 1986 1987 1987 1985 1986 1987 1987
 TABLE: I (r) II (r) III (r) IV (r) I (r) II (r) III (r) IV (r)


Table: Table F. -- U.S. Merchandise Trade, Fixed-Weighted Price Indexes by Major End-Use Category (Change from Same Period One Year Earlier)

(Percent change: Based on index numbers (1982=100), seasonally adjusted)
 TABLE: 1985 1986 1987
 TABLE: II III IV I II III IV I II III IV (p)


(r) Revised.

(p) Preliminary.

(Table: Table G. -- Foreign Currency Cost of U.S. Merchandise Exports, Fixed-Weighted Price Indexes by Major End-Use Category (Change from Same Period One Year Earlier)

(Percent change: Basis on index numbers (1982=100), seasonally adjusted)
 TABLE: 1985 1986 1987
 TABLE: II III IV I II III IV I II III IV (r)


Japan dropped 13 percent, compared with a 15-percent increase; durables from Western Europe slowed to a 3-percent increase from 17-percent increase. Durables from the newly industrialized countries in Asia increased about 27 percent. Nondurables from the newly industrialized countries in Asia increased 18 percent, unchanged from 1986.

Automotive products increased $7.2 billion, or 9 percent, to $85.3 billion, compared with a 20-percent increase. Increases in imports from Japan slowed to 3 percent from 35 percent, and those from West Germany slowed to 14 percent from 27 percent. Unit sales of autos from Japan and West Germany dropped 8 percent and 22 percent, respectively. Over the past 2 years, prices of Japanese autos have risen 9 percent due to dollar depreciation, voluntary sales restraints, and substitution of higer priced for lower priced models. Imports of relatively low-priced autos from Korea increased substantially, as did those from Mexico, where U.S. manufacturers increased assembly operations. The foreign share of total autos sold in the United States decreased 1 percent to 20 percent.

Nonpetroleum industrial supplies and materials increased $1.8 billion, or 3 percent, to $69.0 billion, compared with a 10-percent increase. However, iron and steel products, chemicals, and paper and paper base stocks increased substantially, both in volume and price. Most other supplies and materials increased little in volume; the increases in value were attributable to the sharp rise in world market prices of raw materials, nonfood commodities, and metals, following declines in 1986. Nonmonetary gold dropped substantially.

Petroleum imports increased $8.6 billion, or 25 percent, to $42.3 billion, partly offsetting the slowing in nonpetroleum imports. Most of the increase was due to a 40-percent increase in prices in the first half of the year. For the year, the average price per barrel increased to $17.17 from $14.18. The average number of barrels imported daily increased to 6.75 million from 6.52 million; the increase was more than accounted for by Saudi Arabia and Nigeria. U.S. consumption of petroleum increased 1 percent, and stocks, excluding those of the Strategic Petroleum Reserve, were unchanged. U.S. production decreased 3 percent.

Exports. -- Nonagricultural exports increased $23.9 billion, or 12 percent, to $221.3 billion, compared with a 6-percent increase. Volume increased 12 percent, compared with a 9-percent increase. Although the improvement was widespread across major end-use commodity categories, it was particularly pronounced in capital goods excepts autos. The improvement reflected, to some extent, the effect of dollar depreciation, reinforced in the second half of the year by a pickup in demand in some Western European and Asian countries.

Capital goods increased $9.4 billion, or 12 percent, to $89.2 billion, following a 4-percent increase. Nearly all types of electrical and nonelectrical machinery increased strongly, principally exports to Western Europe, but also to the newly developed countries in Asia. Business and office machines, which had begun to rise in mid-1986, accelerated strongly. Nearly all the increase in business machines was in volume as prices declined. In contrast, prices of other machinery for export increased moderately. However, exports were stimulated by a pickup in demand abroad by substantially lower foreign currency costs due to dollar depreciation.

Nonagricultural industrial supplies and materials increased $5.2 billion, or 7 percent, to $62.7 billion, following an 8-percent increase. Chemicals increased $3.4 billion and paper and paper base products $1.3 billion; both volumes and prices increased. For most other supplies and materials, volume increases slowed considerably and prices rose.

Consumer goods (nonfood) increased $3.4 billion, or 24 percent, to $17.9 billion, following a 12-percent increase.

Automotive products increased $1.1 billion or 5 percent, to $26.6 billion, following a 2-percent increase.

Agricultural exports increased $2.5 billion, or 9 percent, to $29.5 billion, recouping the decrease in 1986. Volume increased 16 percent. Cotton increased $0.8 billion, or 102 percent, mostly to Western Europe, Japan, and South Korea; corn, $0.6 billion, or 23 percent, mostly to South Korea and Taiwan, and fruits and vegetables, $0.4 billion, or 25 percent. The increase in exports reflected the effects of reduced harvests in some parts of the world, the Soviet Union's purchase of grain under export promotion programs, and some improvement in the price competitiveness of U.S. agricultural products in world markets. Sizable price declines in world agricultural markets continued: The average price of corn decreased 18 percent; wheat, 17 percent; and rice, 10 percent. The average price of cotton increased 11 percent, and soybeans, 1 percent.

Balances by area. -- One half of the increase in exports was to Canada and Western Europe, particularly industrial supplies and capital goods. Combined with the slowing of imports across all major commodity categories from these areas, the trade deficit with Canada dropped to $12.0 billion from $13.3 billion and with Western Europe to $27.3 billion from $28.4 billion (tables H, I). Exports to the newly industrialized countries in Asia, especially capitals goods and industrial supplies, also accelerated, but imports, especially consumer and capital goods, rose even more, so that the deficit increased to $34.8 billion from $28.7 billion. Exports to Japan were only slightly higer, following a surge in 1986, but imports of all major commodities except capital goods slowed sharply. As a result, the deficit increased only $2.0 billion to $57.0 billion, following an increase of $10.9 billion.

The deficit with OPEC members other than in Latin America increased to $10.9 billion from $5.8 billion.

Service transactions

Net service receipts were $12.0 billion in 1987 compared with $18.7 billion in 1986 (table J).

Receipts of income on U.S. direct investment abroad increased to $47.9 billion from $36.7 billion. Operating earnings, especially those of manufacturing and other affiliates in Western Europe, increased strongly following little increase in 1986. Earnings in 1987 were boosted by an even larger increase in capital gains than in 1986. Gains in both years were generated largely by the appreciation of major foreign currencies against the dollars. Interest payments decreased $0.9 billion. Receipts of income on other private investment were $46.5 billion compared with $45.2 billion, reflecting higher bank claims (table K). Receipts of income on U.S. Government assets were $5.3 billion had been boosted in 1986 by an exceptionally large debt rescheduling.

Payments of income on foreign direct investment in the United States were $12.6 billion compared with $5.8 billion. Significantly higher operating earnings of manufacturing affiliates, following little increase or loses in 1986, and a recovery in petroleum earnings accoounted for much of the rise. Also, there was a shift in 1987 to capital gains from capital losses. Interest payments increased $0.8 billion. Payments of income on other private investment were #48.6 billion compared with $38.9 billion. The increase was due to larger payments on bonds and bank liabilities in 1987. Payments of income on U.S. Government liabilities were $24.0 billion compared with $22.6 billion.

Net travel and passenger fare payments increased to $8.8 billion from $8.0 billion. Foreign vistors spent $15.4 billion for travel in the United States, up 19 percent rrom the previous year. Travel receipts from overseas were $9.5 billion, up 21 percent: The number of visitors from Japan was up 27 percent; from Europe, 26 percent; and from the Caribbean, 15 percent. Receipts from Canada increased 21 percent to $3.9 billion, mostly due to an increase in the number of auto travelers. Receipts from Mexico increased 6 percent to $2.0 billion; the number of Mexican visitors to the U.S. interior increased 10 percent.

U.S. travel payments totaled $20.8 billion, an 18-percent increase over 1986. Travel expenditures overseas increased 27 percent to $13.3 billion; the number of travelers rebounded from levels depressed by terrorist activities in the peak midsummer travel season in 1986, and average expenditures rose partly as a result of the drop in the dollar's value. Travelers to Europe increased 20 percent, and travelers to the Far East slowed to an 8-percent increase from a 12-percent increase. Travel payments to Canada decreased 3 percent $3.1 billion; the number of travelers to Mexico's interior increased 17 percent, and the number of border crossers increased 3 percent.

Passenger fare receipts from foreign vistors traveling on U.S. flag carriers increased 30 percent to $4.6 billion. The number of visitors was up from Oceania, 60 percent, and Europe, 39 percent. U.S. payments to foreign transocean carriers totaled $8.0 billion, an 18-percent increase. The number of U.S. travelers on foreign flag carriers increased 11 percent, due to a 17-percent increase in travel on European carriers.

Other net transportation payments were $2.8 billion compared with $1.9 billion. Total receipts increased 9 percent to $16.5 billion. Ocean port expenditure receipts increased 10 percent to $6.7 billion due to an 11-percent to $4.7 billion. Total payments increased 13 percent to $19.4 billion. Ocean freight payments increased 10 percent to $9.9 billion, as liner service imports rose 14 percent and tanker volume was up moderately. air port expenditure payments increased 34 percent to $4.2 billion, due to strong growth in U.S. airline traffic overseas. Air Freight payments increased 8 percent to $2.2 billion.

U.S. military transctions with foreigners; resulted in net payments of $2.1 billion, down from $3.7 billion. Transfers under U.S. military agency sales contracts were $11.9 billion, an increase of $3.0 billion. Completion of scheduled deliveries of aircraft and other major equipment during the first half of the year accounted for the increase. U.S. direct defense expenditures abroad were $14.0 billion, up $1.4 billion. Expenditures for contractual services increased $0.9 billion, mostly in Western Europe and Japan, due to the dollar's depreciation against currencies in those areas. Personnel expenditures which are protected by cost-of-living allowances against higher foreign currency costs and inflation, increased nearly $0.2 billion. Pay to foreign nationals and foreign construction payments increased $0.2 billion each, also partly due to higher foreign currency costs.

Net receipts from unaffiliated foreigners for miscellaneous services increased to $2.6 billion from $2.3 billion. Among the components, transactions in securities commissions resulted in a reduction in net payments to $0.4 billion from $0.5 billion. Receipts and payments both increased rapidly in 1987, reflecting the large step-up in activity in securities markets. U.S. brokers' gross receipts of commissions from foreigners on securities transactions increased 45 percent to $2.1 billion. A 70-percent increase in commissions on stocks accounted for most of the increase. The surge in foreign interest in U.S. stocks prior to October resulted in substantial increases in receipts from nearly all areas, led by Japan. Commissions on U.S. Treasury bonds rose moderately, more than accounted for by increased transactions with Japan and the United Kingdom.

Gross payments of commissions to foreign brokers increased 25 percent transfer taxes on foreign securities transactions increased 30 percent, split about evenly among Japan, the United Kingdom, and Western Wurope. Fees paid on new Eurobond issues by U.S. corporations decreased, along with the decline in activity. Increased payments on transactions in outstanding bonds were mostly limited to West Germany and Japan.

Commissions paid by foreigners on futures trading in the United States were $0.3 billion, up from $0.2 billion, reflecting a step-up in trading activity.

Net unilateral transfers

Net unilateral transfers decreased to $13.5 billion in 19987 from $15.7 billion in 1986. U.S. Government grants dropped sharply. Although military grants to contries in the Middle East were maintained, grants to countries in other areas dropped due to a change in administrative procedures that slowed the disbursement of fund relative to the level of funds appropriated. Economic support and project and technical assistance Act also declined, and grants under programs for the use of agricultural products remained at last year's depressed levels.

U.S. assets abroad

U.S. assets abroad increased $63.8 billion in 1987 compared with $96.0 billion in 1986.

U.S. offical reserve assets. -- U.S. official reserve assets decreased $9.2 billion compared with $0.3 billion. Decreases in foreign currency assets, mostly German marks and Japanese yen, were especially large in March and April, when large-scale intervention sales were effected to foster exchange rate stability, and in November and December, when the dollar fell 9 percent against the German mark and 11 percent against the Japanese yen. The U.S. reserve position in the International Monetary Fund decreased $2.1 billion, and holding of special drawing rights increased $0.5 billion.

Claims reported by banks. -- U.S. claims on foreigners reported by U.S. banks increased $33.4 billion compared with $59.0 billion (tables L, M). Interbank market activity dropped significantly: U.S-owned banks reduced their claims on foreigners, and foreign-owned banks limited the increase in their claims.

Interbank claims on own foreign offices and other unaffiliated banks increased $10.0 billion, compared with a $43.9 billion increase. The slowing was accounted for by a $17.2 billion decrease in claims of U.S.-owned banks, following and an increase of $27.2 billion in claims of foreign-owned banks, following an increase of $32.6 billion.

U.S.-owned banks advanced fewer funds to their own foreign offices; large outflows occurred in April and large outflows occurred in April and Septmember when interest rates and credit demands rose sharply making it advantageous to fund foreign offices from the United State. In general, U.S.-owned banks continued to limit their financial exposure abroad. For the year, claims on own foreign offices decreased $3.8 billion.

U.S.-owned banks sharply reduced the funds made available to unaffiliated banks. In large part, the reduction reflected the increased supply of funds made available by Japanese banks and by dollar deposits of foreign monetary authorities in the Eurodollar markets. The reduction may also have partly reflected the payment of earlier large-scale borrowing by banks in Europe for purchases of foreign securities, and a reduced need to finance inventories of securities. For the year, claims on unaffiliated banks decreased $13.4 billion.

Foreign-owned banks made about the same amount of funds available to their own foriegn offices and unaffiliated banks as in 1986. Large outflows occurred in April, May, and September in response to sharp rises in interest rates. In October, banks quickly provided liquidity to their own foreign offices in the two weeks following the collapse in equity prices. (March of this outflow was reversed in early November.) Additional funds were provided to own foreign offices at year-end. For the year, claims of foreign-owned banks increased $27.2 billion.

Claims payable in foreign currencies increased $24.1 billion; 40 percent of the increase was in claims on Japan.

Outside the interbank market, there was no new discretionary lending to problem debtor countries. Bank's claims for demestic customer's accounts increased $2.1 billion, following a $7.1 billion increase: Large purchases of Eurodollar certificates of deposit in the first quarter, when rates rose sharply, were more than offset by large sales in the fourth, when uncertainty and volatility in the Euro-dollar market increased.

U.S. banks continued as net borrowers from the international credit markets in 1987; their increase in claims dropped substantially while their increase in liabilities remained strong. Net funds raised from abroad increased $44.5 billion compared with $18.4 billion (chart 4.)

Foreign securities. -- Net U.S. purchases of foreign securities were $3.7 billion compared with $3.3 billion. Transactions in foreign stocks shifted to net sales from net purchases. Net purchases of foreign bonds more than doubled.

TABLE: Table H. -- U.S. Merchandise Trade Balances by Area

(Balance of payments basis, millions of dollars)

TABLE: 1985 1986 1987(p)

(p) Preliminary.

TABLE: Table 1. -- U.S. Merchandise Trade by Major End-Use Category by Selected Area and County

(Balance of payments basis, millions of dollars)
 TABLE: Canada Western Europe Germany
 TABLE: 1985 1986 1987(p) 1985 1986 1987(p) 1985 1986 1987(p)
 TABLE: Japan Australia, New
 TABLE: 1985 1986 1987(p) Zealand, and South
 TABLE: Africa
 TABLE: 1985 1986 1987p


TABLE: Table J. -- U.S. International Service Transactions

(Millions of dollars)

TABLE: 1985 1986 1987(p)

(p) Preliminary.

1. Consists of goods and services transferred under U.S. military agency sales contracts less imports of goods and services by U.S. defense agencies.

TABLE: Table K. -- Other Private Income(1)

(Billions of dollars)

TABLE: 1985 1986 1987(p)

1. Excludes direct investment receipts and payments.

2. Receipts include certain fee-based income.

3. Primarily income of business concerns other than banks.

TABLE: Table L. -- Private Capital Flows, Net

(Billions of dollars)

TABLE: Claims (increase/capital outflow (-)); liabilities (increase/

TABLE: capital inflow (+))
 TABLE: 1987
 TABLE: 1985 1986 1987(p)
 TABLE: I II III(r) IV(p)


Net U.S. sales of foreign stocks were $2.7 billion compared with net purchases of $0.7 billion. foreign new issues of stock in the United States were especially strong in the second and third quarters, when the cost of equity capital dropped sharply as U.S. equity prices continued to rise. In transaction in outstanding stocks, moderate net purchases early in the year gave way to net sales of $1.2 billion in the third quarter and net sales of $4.2 billion in the forth. By year-end, prices in most major markets were 20-30 percent below peaks in July and August and, on average, at about the same levels as at the beginning of the year (chart 5). Net sales of Western European stocks would have been larger if they had not been partly offset by a special transaction involving a $1.0 billion purchase of British Petroleum shares in November by U.S. underwrites at pre-stock market collapse prices. Net sales of Japanese stocks tripled. There had been net sales since mid-1986; earnings prospect for these shares weekened, particularly for those companies heavily incolved in export trade. Substantial exchange rate gains were realized on the sale of many Western Europeanl and Japanese shares. Gross U.S. transactions in foreign stocks increased 200 percent from January through October, but subsequebtly fell back to 1986 levels in NOvember and December.

Net U.S. purchases of bonds were $6.3 billion compared with $2.6 billion. Over one half the new issues were sold in the fourth quarter when, following the collapse in equity prices, U.S. bond rates dropped than rates in the Eurobond market. Many foreign goverments-including Canadian provincial governments, which had been largely absent from the U.S. market in 1987-and international financial institutions took advantage of an interest differential in favor of U.S. borrowing that increased to 80-115 basis points from 40-50 points during much of the year (chart 6). In transactions in outstanding bonds, redemptions dropped to $3.0 billion from $3.7 billion, and net purchases were $3.1 billion, a shift from net sales from net sales of $0.4 billion. Purchases of Western European bonds dropped by one-half, although purchases of British gilt-edged bonds remained strong at $8.9 billion, compared with $13.0 billion. The average monthly interested differential in favor of gilt-edged bonds declined to 130 basis points from 240 basis points as U.S. rates rose, and was partly offset by an 18-percent appreciation of the British pound against the dollar. Serveral major U.S. dealers continued to offer currency hedging options on these securities to offset currency fluctuations. Purchases of Japanese bonds were $0.2 billion, in contrast to sales of $6.3 billion.

Direct investment.-Net outflows For U.S. investment abroad were $38.2 billion compared with $28.0 billion. Higher operating earningls and capital gains from appreciation of foreign currencies boosted re-invested earnings, which accounted for over 80 percent of the capital outflows. Net equity capital outflows increased $3.3 billion to $3.7 billion, and intercompany debt outflows decreased $5.0 billion, to $3.7 billion (table N).

Foreign assets in the United States

Foreign assets in the United States increased $202.6 billion in 1987 compared with $213.4 billion in 1986.

Foreign official assets.-Foreign official assets in the United States increased $44.3 billion compared with $34.7 billion. Dollar assets of industrial countries increased $48.9 billion following a $28.6 billionl increase. The 2-year increase exceeded the previous record of 1977-78, when there were also substantial exchange market intervention purchases of dollars by industrial countries. Asset increases in 1987 resulting from intervention purchases were especially large in March and April, and again in October and December. Dollar assets of OPEC members decreased $10.0 billion following an $8.5 billion decrease. Dollar assets of other countries increased $5.4 billion compared with $14.6 billion.

Liabilities reported by banks.-U.S. liabilities to foreigners and international financial institutions reported by U.S banks, excluding U.S. Treasury securities, increased $77.9 billion compared with $77.4 billion.

Liabilities to own foreign offices and other unaffiliated banks increased $53.7 billion compared with a $56.8 billion increase. Liabilities of U.S.-owned banks increased $9.1 billion, following a decrease of $2.0 billion, and liabilities of foreign-owned banks increased of $54.8 billion.

U.S.-owned banks borrowed large amounts of funds in April, when interest rates and demand rose rapidly and in September, when interest rates rose and bank reserves were reduced. During the fourth quarter, borrowing needs diminished after ample liquidity was provided by the Federal Reserve following the stock market collapse.

Floreign-owned banks borrowed large amounts of funds, particularly in the third and fourth quarters, to finance strong loan expansion at agencies and branches of foreign banks in the United States and in the Euro-dallor market. Relatively high U.S. interest rates also attracted some funds, and interest differentials in late December strongly favored borrowing from abroad to meet loan demand at yearend.

Liabilities payable in foreign currencies increased $22.9 billion, compared with $14.5 billion; over one-third of the 1987 increase was to Japan.

U.S. Treasury securities.-Transactions in U.S. Treasury securities shifted to net foreign sales of $6.1 billion from net purcheses of $8.3 billion.

This shift was in contrast to the $44.3 billion increase in foreign official purchases, which largely reflected exchange market intervention to supports the dollar.

Other U.S. securities. -- Net foreign purchases of U.S. securities other than U.S. Treasury fell to $42.1 billion from lasts year's record $70.8 billion. Foreigners purchased $22.4 billion in Eurobonds issued abroad by U.S. corporations, compared with $39.4 billion, and $15.4 billion in U.S. stocks, slightly below last year's record $17.0 billion (chart 7).

Sharply higher interest rates led to a marked reduction in the level of U.S. corporate borrowing in the Eurobond market the first three quarters. Borrowing was further reduced in the fourth due to increased volatility in financial markets tha followed the declines in equity prices and interest rates in October. For the year, the total amount of borrowing in bond markets bu U.S. corporations dropped to $151 billion from $210 billion; the overseas shared dropped to 14 percent from 20 percent.

Industrial corporations reduced their borrowing to $10.7 billion from $16.6 billion; their borrowing had begun to drop rapidly in the last half of 1986 even before interest rates began to rise in 1987 (table O). Borrowing by bank holding companies was virtually nonexistent, and borrowing by nonbank financial institutions was reduced year's record.

Straight fixed-rate bonds accounted for 65 percent of total borrowing, up from 60 percent in 1986. Convertible issues exceeded last year's record due to continued strength in equity prices in the first three quarters of the year. For the year, their share increased to 20 percent from 8 percent. Floating-rate note issues were small due to the absence of borrowing by bank holding companies.

As in 1986, more than three-fourths of U.S. corporate borrowing was denominated in dollars. The share of borrowing denominated in Swiss francs dropped to 4 percent from 9 percent, and the share in Japanese yen to less than 1 percent from 7 percent.

Net foreign purchases of U.S. agency bonds were $3.6 billion compared with $8.2 billion.

Net foreign purchases of U.S. stocks were $15.4 billion compared with $17.0 billion (chart 8). Increased foreign purchases had begun in mid-1985 and continued during most of 1986 and much of 1987, in step with the rise in equity prices. By the end of the second quarter of 1987, net purchases exceeded the total for all of 1986. For the period prior to the October collapse in equity prices, net purchases were $26.3 billion; net sales of $7.9 billion occured in November and December. Western Europeans purchased $10.2 billion net through October, and subsequently sold $9.4 billion. Japanese holders purchased $11.2 billio0n net through October, and subsequebtly purchased $0.2 billion. Japanesed purchases for the year tripled following the liberalization of investment restrictioins in 1986. Gross foreign transactions in the U.S. stock market increased 70 percent from January through October, but subsequently fell back to 1986 levels.

Direct investment.-Net inflows for foreign direct investment in the United States were a record $40.6 billion, compared with $25.1 billion. The surge was spurred by relatively low-cost debt, by cost and other incentives to shift production to the United States, and by significant appreciation of many foreign currencies against the dollar. Intercompany debt inflows increased to $19.2 billion from $6.9 billion, largely related to foreign parent financing of major aquisitions of U.S. companies. Equity capital inflows, although decreasing $2.1 billion to $17.4 billion, were still strong. Re-invested earnings shifted to a positive $4.0 billion from a negative $1.3 billion, due to higher operating earnings of manufacturing affiliates and a recovery in earnings of petroleum affiliates. (In 1986, a large number of U.S. affiliates had suffered losses).

The statistical discrepancy (errors and omissions in reported transactions) decreased to an inflow of $21.9 billion from $23.9 billion.

SURVEY OF CURRENT BUSINESS

TABLE: Table M. -- U.S. Bank-Reported Claims and Liabilities by Type

(Billions of dollars)

TABLE: 1987

TABLE: 1985 1986 1987(p)

TABLE: I II III(r) IV(p)

(R) Revised

(p) Preliminary

TABLE: Table N. -- Selected Direct Investment Transactions With Netherlands Antilles Finance Affiliates

(Millions of dollars)

TABLE: 1986 1987

TABLE: (Credits +; debits -) 1985 1986 1987(p)

TABLE: I II III IV I II III(r)

TABLE: IVp

(p) Preliminary

(r) Revised

TABLE: Table O. -- New International Bond Issues by U.S. Borrowers

(Millions of dollars)
 TABLE: 1987
 TABLE: 1985 1986 1987(p)
 TABLE: I II III IV(p)


(p) Preliminary

TABLE: Table p. -- Selected U.S. Transactions With OPEC Members(1)

(Million of dollars)

TABLE: (Credits +; debits -) 1973 1974 1975 1976 1977 1978 1979 1980

TABLE: 1981(r) 1982(r) 1983(r) 1984(r) 1985(r) 1986(r) 1987(p)

CHART 5

Indexes of Stock Prices

Data from Business Conditions Digest, rebased to January 1987 = 100. U.S. Department of Commerce, Bureau of Economic Analysis 88-3-5

CHART 6

U.S. and Foreign Interest Rates

1. Interest for 3-month interbank loans or short-term paper for other Group of 10 countries and Switzerland weight by Data: Federal Reserve Board; Morgan Guarantly Trust Company

U.S. Department, Buerau of Economic Analysis 88-3-6

CHART 7

Net Purchases and Sales of U.S. Securities by Private Foreigners

U.S. Department of Commerce, Bureau of Economic Analysis 88-3-7

CHART 8

Private Foreign Transactions in U.S. Stocks

U.S. Department of Commerce, Bereau of Economic Analysis 88-3-8

SURVEY OF CURRENT BUSINESS

Table: Table 1-2. -- U.S. International Transactions

(Millions of dollars)
 TABLE: Line (Credits +; debits -)(1) 1986 1987(p)
 TABLE: Not seasonally adjusted
 TABLE: 1987
 TABLE: I II III(r) IV(p)
 TABLE: Seasonally adjusted
 TABLE: 1987
 TABLE: I(r) II((r) III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 3. -- U.S. Merchandise Trade

(Millions of dollars)
 TABLE: Line 1986 1987(p)
 TABLE: Not seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I II III(r) IV(p)
 TABLE: Seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I(r) II(r) III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 3. -- U.S. Merchandise Trade -- Continued

(Millions of dollars)
 TABLE: Line 1986 1987(p)
 TABLE: Not seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I II III(r) IV(p)
 TABLE: Seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I(r) II(Rr) III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table 3. -- U.S. Merchandise Trade -- Continued

(Millions of dollars)
 TABLE: Line 1986 1987(p)
 TABLE: Not seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I II III(r) IV(p)
 TABLE: Seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I(r) II(r) III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table 3. -- U.S. Merchandise Trade -- Continued

(Millions of dollars)
 TABLE: Line 1986 1987(p)
 TABLE: Not seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I II III(r) IV(p)
 TABLE: Seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I(r) II(r) III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 3. -- U.S. Merchandise Trade -- Continued

(Millions of dollars)
 TABLE: Line 1986 1987(p)
 TABLE: Not seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I II III(r) IV(p)
 TABLE: Seasonally adjusted
 TABLE: 1986 1987
 TABLE: II III IV I(r) II(r) III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 4. -- Selected U.S. Government Transactions

(Millions of dollars)
 TABLE: Line 1986 1987(p)
 TABLE: 1986 1987
 TABLE: I II III IV I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 5. -- Direct Investment: Income, Capital, Royalties and License Fees, and Other Private Services

(Millions of dollars)
 TABLE: Line (Credits +; debits -) 1986 1987(p)
 TABLE: 1986 1987
 TABLE: I II III IV I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 6. -- Securities Transactions

(Millions of dollars)
 TABLE: Line (Credits +; debits -) 1986 1987(P)
 TABLE: 1986 1987
 TABLE: I II III IV I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 7. -- Claims on and Liabilities to Unaffiliated Foreigners Reported by U.S. Nonbanking Concerns

(Millions of dollars)
 TABLE: Line (Credits +; increase in U.S. liabilities or decrease in U.S.
 TABLE: assets.
 TABLE: Debits -; decrease in U.S. liabilities or increase in U.S.
 TABLE: assets.)
 TABLE: 1986 1987 Amounts
 TABLE: 1986 out-
 TABLE: standing
 TABLE: I II III IV I II III(p) IV Sept. 30,
 TABLE: 1987


SURVEY OF CURRENT BUSINESS

Table: Table 8. -- Claims on Foreigners Reported by U.S. Banks

(Millions of dollars)
 TABLE: Line (Credits +; decrease in U.S. assets.
 TABLE: Debits -; increase in U.S. assets.) 1986 19879p)
 TABLE: 1986 1987 Amounts
 TABLE: out-
 TABLE: standing
 TABLE: I II III IV I II III(r) IV(p) Dec. 31,
 TABLE: 1987


SURVEY OF CURRENT BUSINESS

Table: Table 9. -- Foreign Official Assets and Other Foreign Assets in the United States Reported by U.S. Banks

(Millions of dollars)
 TABLE: Line (Credits +; increase in foreign assets.
 TABLE: Debits -; decrease in foreign assets.) 1986 1987(p)
 TABLE: 1986 1987 Amounts
 TABLE: out-
 TABLE: standing
 TABLE: I II III IV I II III(r) IV(p) Dec. 31,
 TABLE: 1987


Table 1-2:

1. Credits, +: Exports of goods and services; unilateral transfers to United States; capital inflows (increase in foreign assets (U.S. liabilities) or decrease in U.S. assets); decrease in U.S. official reserve assets; increase in foreign official assets in the United States.

Debits, --: Imports of goods and services; unElateral transferrs to foreigners; capital outflows (decrease in foregn assets (U.S. liabilities or increase in U.S. assets); increase in U.S. official reserve assets; decrease in foreign official assets in the United States.

2. Excludes transfers of goods and services under U.S. military grant programs (see line 15).

3. Excludes exports of goods under U.S. military agency sales contracts identified in Census export documents, excludes imports of goods under direct defense expenditures identiffied in Census import documents, and reflects various other adjustments (for valuation, coverage, and timing) of Census statistices to balance of payments basis; see table 3.

4. Beginning in 1982, line 7 and line 22 are redefined to include only net receipts and payments for the use or sale of intangible property rights, including patents industrial processes, trademarks, copy rights, franchises, designs, know-how formulas, techniques, and manufacturing rights. Other direct investment services, net -- including fees for management, professional, and technical services; charges for use of tangible property; film and television tape rentals; and all other charges and fees -- are shown in line 9 and line 24. Data on the redefined basis are not separately available prior to 1982.

5. For all areas; amounts outstanding December 31, 1987, were as follows in millions of dollars: Line 36, 45,800; line 37, 11,078; line 38, 10,283; line 39, 11349; line 40, 13,090. Data are preliminary.

6. Includes sales of foreign obligations to foreigners.

7. Consists of bills, certificates, marketable bonds and notes, and nonmarketable convertible and nonconvertible bonds and notes.

8. Consists of U.S. Treasury and Export-Import Bank obligations, not included elsewhere, and of debt securities of U.S. Government corporations and agencies.

9. Includes, primarily, U.S. Government liabilities associated with military agency sales contracts and other transactions arranged with orr through foreign official agencies; see table 4.

10. Consists of investments in U.S. corporate stocks and in debt securities of private corporations and State and local governments.

11. Conceptually, the sum of lines 69 and 64 is equal to "net foreign investment" in the national income and product accounts (NIPA's). However, the foreign transactions account in the NIPA's (a) includes adjustments to the international transactions accounts for the treatment of gold, (b) excludes capital gains and losses of foreign affiliates of U.S. parent companies from the NIPA measure of income receipts from direct investment abroad, and from the corresponding income payments on direct investment abroad, and from the corresponding income payments on direct investment in the United States, (c) includes an adjustment for the differrent geographical treatment of transactions with U.S. territories and PDerto Rico, and (d) includes services furnished without payment by financial intermediaries, except life insurance carriers and private noninsured pension plans. In addition, for NIPA purposes, U.S. Government interest payments to foreigners are excluded from "net exports of goods and services" but included with transfers in "net foreign investment." A reconciliation of the balance on goods and services from the international accounts and the NIPA net exports appears in the "Reconciliation and Other Special Tables" section in this issue of the SURVEY OF CURRENT BUSINESS. A Reconciliation of other foreign transactions in the two sets of accounts appears in table 4.5 of the full set of NIPA tables (published annually in the July issue of the SURVEY).

Table 3:

1. Exports, Census basis, represent transaction values, f.a.s. U.S. port of exportation; imports, Census basis, represent Customs values (see Technical Notes, June 1982 SURVEY). Both unadjusted and seasonally adjusted data have been prepared by BEA from "actual" and "revised statistical" month data supplied by the Census Bureau (see Technical Notes, December 1985 SURVEY). The seasonally adjusted data are the sum of seasonally adjusted 4-digit end-use commodity categories (see Technical Notes, June 1980 SURVEY).

2. Adjustments in lines A5 and A13, B12, B46, and B80 reflect the Census Bureau's reconciliation of discrepancies between the merchandise trade statistics published by the United States and the counterpart statistics published in Canada. These adjustments also have been distributed to the affected end-use categories in section C. Beginning in 1986, estimates for undocumented exports to Canada, the largest item in the U.S. Canadian reconciliation, are included in the Census basis data shown in lines A1, D1, and D58.

3. Exports of military equipment under U.S. military agency sales contracts with foreign governments (line A6), and direct imports by the Department of Defense and the Coast Guard (line A14), to the extent such trade is identifiable from Customers declarations. These exports are included in tables 1, 2, and 10, line 3 (transfers under U.S. military agency sales contracts); the imports are included in tables 1, 2 and 10, line 18 (direct defense expenditures).

4. Addition of electrical energy; deduction of exposed motion picture film for rental rather than sale; net change in stock of U.S. owned grains in storage in Canada; and caverage adjustments for special situations in which shipments were omitted from Census data.

5. Deduction of foreign charges for repair of U.S. vessels abroad, which are included in tables 1, 2, and 10, line 21 (other transportation); and coverage adjustments for speical situations in which shipments were omitted from Census data.

6. Annual and unadjusted quarterly data shown in this table correspond to country and area data in table 10, lines 2 and 17. Trade with international organizations includes purchases of nonmonetary gold from the IMF, transfers of tin to the International Tin Council (ITC), and sales of satellites to Intelsat. The memoranda are defined as follows: Industrial countries: Western Europe, Canada, Japan, and Australia, New Zealand, and South Africa; Members of OPEC: Venezuela, Ecuador, Iraq, Iran, Kuwait, Saudi Arabia Qatar, United Arab Emirates, Indonesia, Algeria, Libya, Nigeria, Gabon; Other countries: Eastern Europe, Latin American Republics, other Western Hemisphere, and other countries in Asia and Africa, less OPEC. For all years, "Asia" and "Africa" exclude certain Pacific Islands and unidentified countries included in "Other countries in Asia and Africa."

7. Includes nuclear fuel materials and fuels.

Table 4:

1. Expenditures to release foreign governments from their contractual liabilities to pay for defense articles and services purchased through military sales contracts -- first authorized (for Israel) under Public Law 93-199, section 4 and subsequently authorized (for many recipients) under similar legislation -- are included in line A3. Deliveries against these military sales contracts are included in line C10; see footnote 2. Of the line A3 items, part of these military expenditures is applied in lines A40 and A43 to reduce short-term assets previously recorded in lines A38 and C8; this application of funds is excluded from lines C3 and C4. A second part of line A3 expenditures finances future deliveries under military sales contracts for the recipient countries and is applied directly to lines A39 and C9. A third part of line A3, disbursed directly to finance purchases by recipient countries from commercial suppliers in the United States, is included in line A34. A fourth part of line A3, representing dollars paid to the recipient countries to finance purchases from countries other than the United States, is included in line A45.

2. Transactions under military sales contracts are those in which the Department of Defense sells and transfers military goods and services to a foreign purchaser, on a cash or credit basis. Purchases by foreigners directly from commercial suppliers are not included as transactions under military sales contracts. The entries for the several categories of transactions related to military sales contracts in this and other tables are partly estimated from incomplete data.

3. The identification involving direct dollar outlows from the United States is made in reports by each operating agency.

4. Line A35 includes foreign currency collected as interest and line A40 includes foreign currency collected as principal, as recorded in lines A13 and A14, respectively.

5. Includes (a) advance payments to the Department of Defense (on military sales contracts) financed by loans extended to foreigners by U.S. Government agencies and (b) the contraentry for the part of line C10 which was delivered without prepayment by the foreign purchasers from liability to make repayment.

6. Includes purchases of loans from U.S. banks and exporters and payments by the U.S. Government under comercial export credit and investment guarantee programs.

7. Excludes liabilities associated with military sales contracts finance by U.S. Government grants and credits and included in line C2.

Table 5:

1. Also included in line 4.

2. Acquisition of equity holdings in existing and newly established companies, capital contributions, capitalization of intercompany accounts, and other equity contributions.

3. Sales, liquidations, and other dispositions of equity holdings, total and partial.

4. Petroleum includes, and manufacturingg and "other" industries exclude, the exploration, development, and production of crude oil and gas, and the transportation, refining, and marketing of petroleum products exclusive of petrochemicals. Manufacturing excludes petroleum refining. "Other" industries includes mining; wholesale trade; banking; finance (except banking), insurance, and real estate; services; and other industries -- agriculture, forestry, and fishing; mining; construction; transportation, communications, and public utilities; and retail trade.

5. Also included in line 47.

Table 6:

1. Primarily provincial, regional, and municipal.

2. Largely transactions by International Bank for Reconstruction Corporation (IFC), Asian Development Bank (ADB), and Inter-American Development Bank (IDB).

3. Estimate for scheduled redemptions and identifiable early retirements. Includes estimates based on Canadian statistics for redemptions of Canadian issues held in the United States. Unidentified and nonscheduled retirements appear in line 28.

4. Issues through finance affiliates established primarily to borrow capital from abroad. Issues are almost always guaranteed by the establishing U.S. parent and are often convertible into the parents' securities. To the extent proceeds are transferred from offshore affiliates to U.S. parents -- the common practice -- they are recorded as direct investment transactions in table 5, line 8.

Table 7:

1. Primarily mortgages, loans, and bills and notes drawn of foreigners.

2. Consists of Western Eurrope, Canada, Japan, Australia, New Zealand, and South Africa.

3. Bahamas, British West Indies (Cayman Islands), Netherlands Antilles, and Panama.

4. Based on data for Ecuador, Venuzuela, Indonesia, and other Asian and LAfrican oil-exporting countries.

Table 8:

1. Includes central governments and their agencies and corporations; state, provincial, and local governments and their agencies and corporations; and international and regional organizations.

2. U.S. owned banks are mainly U.S. chartered banks and Edge Act subsidiaries. U.S. brokers' and dealers' accounts may be commingled in some categories. Foreign-owned banks include U.S. branches and agencies of foreign banks and majority-owned bank subsidiaries in the United States.

3. Western Europe, Canada, Japan, Australia, New Zealand, and South Africa.

4. Bahamas, British West Indies (Cayman Islands), Netherlands Antilles, and Panama.

5. Based on data for Ecuador, Venezuela, Indonesia, and other Asian and African oil-exporting countries.

6. Includes Eastern Europe and international and regional organizations.

Table 9:

1. Negotiable certificates of deposit issued by banks in the United States are included in banks' custody liabilities and are separately identified in memorandum line 8. Nonnegotiable certificates of deposit are included in time deposits.

2. Includes borrowing under Federal funds or repurchase arrangements, deferred credits, and liabilities other than deposits.

3. Mainly negotiable and readily transferable instruments, excluding U.S. Treasury securities.

4. Mainly International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), Asian Development Bank (ADB), Inter-American Development Bank (IDB), and the Trust Fund of the International Monetary fund.

5. U.S. owned banks are mainly U.S. chartered banks and Edge Act subsidiaries. U.S. brokers' and dealers' liabilities may be commingled in some categories. Foreign-owned banks are U.S. branches and agencies of foreign banks and majority-owned bank subsidiaries in the United States.

6. Western Europe, Canada, Japan, Australia, New Zealand, and South Africa.

7. Bahamas, British West Indies (Cayman Islands), Netherlands Antilles, and Panama.

8. Based on data for Ecuador, Venezuela, Indonesia, and other Asian and African oil-exporting countries.

9. Includes Eastern Europe and international and regional organizations.

Table 10:

For footnotes 1-11, see table 1.

12. The "European Communities (10)" includes the "European Communities (6)," United Kingdom, Denmark, Ireland, and Greece. "European Communities (12)" reflects the admission of Spain and Portugal in 1986.

13. The "European Communities (6)" includes Belgium, France, Germany, Italy, Luxembourg, Netherlands, European Atomic Energy Community, European Coal and Steel Community, and European Investment Bank.

14. Includes, as part of international and unallocated, the estimated direct investment in foreign affiliates engaged in international shipping, in operatig oil and gas drilling equipment that is moved from country to country during the year, and in petroleum trading.

15. Details not shown separately; see totals in lines 51 and 58.

16. Details not shown separately are included in line 63.
 TABLE: Western Europe EC(12)(12)
 TABLE: (Credits +; debits-)(1) 1987
 TABLE: 1986 1987(p) 1986 1987(p)
 TABLE: I II III(r) IV(p)


(P: Preliminary)

(R: Revised)

SURVEY OF CURRENT BUSINESS

Transactions, by Area

of dollars)
 TABLE: European Communities (12)(12)
 TABLE: 1987
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)


TABLE: United Kingdom
 TABLE: 1987
 TABLE: I II III(r) IV(p)
 TABLE: European Communities (6)(13)
 TABLE: 1987 Line
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 10. -- U.S. International

(Millions
 TABLE: (Credits +; debits -)(1)
 TABLE: Eastern Europe Canada
 TABLE: 1987
 TABLE: 1986 1987(p) 1986 1986(p)
 TABLE: I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Transactions, by Area -- Continued

of dollars)
 TABLE: Canada
 TABLE: 1987
 TABLE: I II III(r) IV(p)
 TABLE: Latin American Republics and Other Western Hemisphere
 TABLE: 1987
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)
 TABLE: Japan
 TABLE: 1987 Line
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Table: Table 10. -- U.S. International

(Millions
 TABLE: (Credit +; debits -)(1)
 TABLE: (Australia, New Zealand, and South Aferica
 TABLE: 1987
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)


SURVEY OF CURRENT BUSINESS

Transactions, by Area -- Continued

of dollars)
 TABLE: Other countries in Asia and Africa
 TABLE: 1987
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)
 TABLE: International organizations and unallocated(14)
 TABLE: 1987 Line
 TABLE: 1986 1987(p)
 TABLE: I II III(r) IV(p)
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Title Annotation:includes 31 tables and charts
Author:Bach, Christopher L.
Publication:Survey of Current Business
Date:Mar 1, 1988
Words:11425
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