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2nd Qtr 12:10

Deficit in trade, borrowing narrows for US

WASHINGTON — The US current account trade deficit narrowed in the July-September quarter to the smallest level since late 2010, but the improvement may not last.

The deficit fell to $107.5 billion in the third quarter, down 9 percent from the second quarter imbalance of $118.1 billion, the Commerce Department reported Tuesday. It was the lowest trade gap since the final three months of 2010.

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The current account is the broadest measure of trade. It tracks the sale of merchandise and services between nations as well as investment flows. Economists watch the current account as a sign of how much the United States needs to borrow from foreigners.

Many economists predict the deficit will widen in coming quarters, in part because a global slowdown is dampening demand for American exports.

A debt crisis has pushed much of Europe into recession. The region accounts for about one-fifth of US export sales. And other major export markets, including China, India, and Brazil, have experienced slower growth.

The current account deficit hit a high of $800.6 billion in 2006. It then shrank after a deep recession reduced US demand for foreign goods by a greater amount than US export sales diminished. The trade gap widened again after the recession ended in June 2009.

The improvement in the current account in the third quarter reflected a decline in the deficit on goods and a small increase in the surplus on services, led by a gain in foreign earnings made by US companies providing financial services, insurance and professional services. The surplus on investment earnings narrowed to $50.8 billion, down from $52.1 billion in the second quarter.

The narrowing of the deficit in the third quarter left it at a level equivalent to 2.7 percent of the total economy, down from 3 percent in the second quarter. The third quarter deficit represented the smallest percentage of the economy since the spring of 2009 .

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