Definition:

The Current Account balance is a measure that attempts to track the difference between savings and investment across our borders through the following 4 components:

1. Merchandise Trade Account – the net amount of “visible” goods (i.e. cars) that are exchanged between the US and other countries; since the 1970s, America has run a merchandise trade deficit with the rest of the world meaning Americans spend more on goods than we sell

2. Services Trade Account – similar to Merchandise Trade Account, except service trade account deals with “invisible” goods; the U.S. has historically run a surplus in this account

3. Income Account – the net amount of income received on investments in foreign assets

4. Unilateral Transfer – one-way transfers out of the country for special situations such as foreign aid, government grants, pension payments, and worker remittances

In 1997, the U.S. Current Account balance began to decline substantially as savings rates fell and spending increased. In 2003, the Current Account deficit represented 4.8% of GDP. Currently, that percentage has increased close to 6% as savings rates continue to slide.

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