U.S. Current Account Gap Widens

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U.S. Current Account Gap Widens By Tim Ahmann WASHINGTON (Reuters) - The U.S. current account trade gap widened slightly to a record $164.71 billion in the third quarter, data showed on Thursday, but U.S. dependence on overseas capital was not as great as feared, fueling a big dollar rally. Reuters Photo Separate reports showed first-time claims for jobless aid posted their sharpest drop in three years last week, while activity at factories in the Middle Atlantic region quickened. But in a touch of bad news, the government said housing starts in November logged the biggest drop in nearly 11 years. Prices for U.S. government bonds slipped in the wake of the mixed data, but the dollar shot higher as traders breathed a collective sigh of relief that the trade shortfall was much smaller than the $170 billion Wall Street had braced for. Stock indices were close to flat in early afternoon as corporate news pulled in differing directions. The current account gap -- running at a hefty 5.6 percent of the size of the U.S. economy -- grew by just $318 million in the July-September period from a revised second-quarter reading of $164.39 billion, the Commerce Department (news - web sites) said. The second-quarter gap was first reported as $166.18 billion. The dollar has fallen roughly 5 percent against the euro this year and some 4 percent against a basket of major currencies amid worry that foreign investors' willingness to finance the huge trade deficit will fade. Economists have warned of the potential for a steep dollar drop if the supply of overseas cash that has helped fuel U.S. consumption begins to dry up. Stephen Cecchetti, former research director at the New York Federal Reserve (news - web sites) Bank, blamed bloated U.S. budget deficits for the troubling current account shortfall. "The problem with the current account is domestic saving," he said. "It requires a fiscal policy solution." British Chancellor of the Excheckr Gordon Brown said on Thursday the twin U.S. trade and budget deficits were causing global economic stress and that he would discuss the matter with U.S. officials in coming days. "They have got to set a clear path for showing that these can be dealt with over the next period of time," he said shortly before jetting off to New York. President Bush (news - web sites), who pushed big tax cuts through Congress during his first term, restated Washington's commitment to getting its fiscal house in order on Wednesday as he met with Italian Prime Minister Silvio Berlusconi. JOB MARKET BRIGHTENS, HOUSING SOURS A separate report showed initial claims for jobless benefits fell by much more than expected in the week ending Dec. 11 to 317,000, their lowest level since July. Wall Street economists had expected only a slight dip to 340,000. The Labor Department (news - web sites) said there were no special factors to account for the drop, the largest since December 2001, but cautioned claims are often volatile in the holiday period toward the end of the year. (Sam note: Jobless claims ALWAYS drop at this time of the holiday year! This is the same ol' manipulative propraganda by the Bush administration.) "It brings the claims number back down to a level that's really very positive," said Patrick Fearon, economist at A.G. Edwards & Sons in St. Louis. Separately, the Federal Reserve Bank of Philadelphia said its index of factory activity in the mid-Atlantic region jumped to 29.6 in December from 20.7 in November, well ahead of forecasts. It was the 19th straight month the index has indicated an expansion with a reading above zero. Another report showed housing starts unexpectedly plummeted 13.1 percent last month, the biggest dive since a 17 percent tumble in January 1994, as groundbreaking activity fell sharply across the nation. Housing starts slid to an annual rate of 1.771 million units in November from an upwardly revised 2.039 million clip a month earlier, the Commerce Department said. Economists had expected starts to ease only slightly and some saw the report as a sign of brewing trouble for the long high-flying U.S. housing sector. "The housing market is finally beginning to cool off. This is the beginning of the end," said David Wyss, chief economist for Standard & Poor's. "The housing number is scary." (Additional reporting by Alister Bull in Washington and Pedro Nicolaci da Costa in New York)