The US current account deficit grew to a new record in the first quarter of 2004, reaching 5.1 per cent of the size of the US economy, as Americans' insatiable appetite for foreign goods continued to grow, government figures showed.
Even though US exports to the rest of the world have been growing at a fast clip as global economic activity accelerates, imports of items like Japanese cars are growing even more quickly, thanks to surging consumer demand and higher energy prices.
The gap in the current account balance, the broadest measure of the nation's trade with the rest of the world, widened by a larger-than-expected $17.9 billion to $144.9 billion in the first quarter, the Commerce Department said. This amounts to 5.1 per cent of the total US economy, up from 4.6 per cent in the fourth quarter.
The report renewed downward pressure on the dollar, with the euro gaining about 0.74 per cent against the US currency. Against the yen, the dollar touched a six-week low.
"Although the US remains the world's primary economic growth engine, the rest of the world is financing a substantial portion of that spending," said Steven Wood, chief economist at Insight Economics.
Other economic reports pointed to a slowdown in the pace of economic growth in the latest week, and forecasts of a moderate slowdown heading into 2005.
The current account deficit has been blamed for weakening the dollar against other currencies as Americans import more than they export and borrow from the rest of the world to make up for the shortfall in their domestic savings.
Insight's Wood pointed out that the United States needs to borrow nearly $1.5 billion daily in order to finance this shortfall.
Much of this gap has been filled by official foreign purchases of US government bonds, as countries like China and Japan snapped up dollar-denominated assets during massive intervention campaigns to weaken their currencies against the US currency.
Official foreign purchases of US assets rose $125.2 billion in the first quarter following an increase of $83.7 billion in the fourth.
Some economists worry that if foreigners eventually slow their purchases of US assets, stock prices could fall and US interest rates be pushed higher.
US-owned assets abroad climbed $289.3 billion, after a $61.6 gain in the previous quarter, the report showed.
The gap between goods imports and exports widened to $150.8 billion in the first quarter, from $139.4 billion in the fourth quarter as the US economy picked up steam.
The weaker US dollar has helped boost exports, making US goods cheaper overseas. The dollar fell three per cent in the first quarter on a trade-weighted basis.
Surprisingly, the weaker dollar has yet to make a dint in imports, which have become more expensive as a result of the weaker currency. But higher prices have not put off consumers, yet.
A separate report over the weekend by the independent Economic Cycle Research Institute said the pace of growth in the US moderated to a 13-month low last week.
"These are very clear signs of deceleration on the horizon," said the group's director of research Anirvan Banerji.
A third report released by the Philadelphia Federal Reserve Bank showed the US economy is forecast to slow down slightly next year, and inflation is also expected to ease from this year's pace.
The semiannual survey of 26 private-sector and academic economists predicted the world's largest economy will grow by 3.8 per cent in the first half of 2005, down from 4.1 per cent in the second half of this year.
If that slowdown in the overall economy also dampens demands for imports, the trade deficit could narrow in the year ahead.