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EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, WEDNESDAY, SEPTEMBER 19, 2018

BE-18-47

U.S. International Transactions: Second Quarter 2018

Current-Account Balance

The U.S. current-account deficit decreased to $101.5 billion (preliminary) in the second quarter of 2018 from $121.7 billion (revised) in the first quarter of 2018, according to statistics released by the Bureau of Economic Analysis (BEA). The deficit was 2.0 percent of current-dollar gross domestic product (GDP) in the second quarter, down from 2.4 percent in the first quarter.

Quarterly U.S. Current-Account and Component Balances

The $20.3 billion decrease in the current-account deficit reflected a $17.6 billion decrease in the deficit on goods, a $2.5 billion increase in the surplus on services, and relatively small and offsetting changes in the balances on primary income and secondary income.

Quarterly U.S. Current-Account Transactions

Current-Account Transactions (tables 1-5)

Exports of goods and services and income receipts

Exports of goods and services and income receipts increased $28.0 billion in the second quarter to $933.3 billion.

Goods exports increased $17.8 billion to $429.2 billion, mostly reflecting increases in industrial supplies and materials, primarily petroleum and products, and in foods, feeds, and beverages, primarily soybeans.
Primary income receipts increased $3.9 billion to $259.9 billion, primarily reflecting increases in portfolio investment income and in other investment income. A decrease in direct investment income partly offset the increases. For more information on direct investment income, see the box "Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts."
Services exports increased $3.2 billion to $209.2 billion, mainly reflecting increases in other business services, led by professional and management consulting services, in financial services, and in charges for the use of intellectual property.

Imports of goods and services and income payments

Imports of goods and services and income payments increased $7.7 billion in the second quarter to $1,034.7 billion.

Primary income payments increased $4.2 billion to $199.1 billion, mainly reflecting increases in other investment income and in portfolio investment income. A decrease in direct investment income partly offset the increases.
Secondary income payments increased $2.7 billion to $63.4 billion, primarily reflecting an increase in U.S. government grants.

Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts

In the international transactions accounts, income on equity, or earnings, of foreign affiliates of U.S. multinational enterprises in a period typically consists of a portion that is repatriated to the parent company in the United States in the form of dividends and a portion that is reinvested in foreign affiliates. At times, repatriation of dividends exceeds current-period earnings, resulting in negative values being recorded for reinvested earnings. With the revised statistics for the first quarter of 2018, earnings were $128.1 billion, with dividends and withdrawals of $294.9 billion and reinvested earnings of −$166.8 billion. With the preliminary statistics for the second quarter, earnings were $126.8 billion, with dividends and withdrawals of $169.5 billion and reinvested earnings of −$42.7 billion (table 4).

The large magnitudes for dividends and withdrawals and the negative reinvested earnings reflect the repatriation of accumulated earnings by foreign affiliates of U.S. multinational enterprises to their parent companies in the United States in response to the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA requires U.S. parent companies to pay a one-time tax on their accumulated earnings held abroad, but generally eliminates taxes on repatriated earnings. The negative reinvested earnings in the first and second quarters reflect the fact that dividends exceeded earnings and U.S. parent companies withdrew accumulated prior earnings from their foreign affiliates. The negative reinvested earnings are also reflected in the net acquisition of direct investment assets in the financial account, which was −$139.3 billion in the first quarter and −$29.0 billion in the second quarter (table 6).

Direct Investment Income Receipts and Components

For more information, see "How does the 2017 Tax Cuts and Jobs Act affect BEA's business income statistics?" and "How are the international transactions accounts affected by an increase in direct investment dividend receipts?"

In addition to the repatriation of accumulated earnings, some companies made other changes to their business practices in reaction to the TCJA. For example, some insurance companies changed how they operate in response to the base erosion and anti-abuse tax (BEAT) provision of the TCJA. BEAT is a tax on certain payments from a U.S. company to a related foreign party, which can include premium payments for reinsurance. In response to the new tax, many U.S. insurance companies terminated these intracompany reinsurance contracts. As a result, premiums paid by U.S. insurers to foreign insurers in the first and second quarters of 2018, at $24.0 billion and $23.7 billion respectively, were down from $31.4 billion in the fourth quarter of 2017 and other recent quarters (table 3). Similarly, insurance services imports in the first and second quarters, at $9.8 billion and $9.2 billion respectively, were down from $12.4 billion in the fourth quarter of 2017 and other recent quarters.

For more information on the estimation methods used to compile insurance services, see the insurance section in "U.S. International Economic Accounts: Concepts and Methods."

Financial Account (tables 1, 6, 7, and 8)

Net U.S. borrowing measured by financial-account transactions was $134.3 billion in the second quarter, a decrease from net borrowing of $160.9 billion in the first quarter.

Financial assets

Net U.S. liquidation of financial assets excluding financial derivatives was $175.1 billion in the second quarter following net U.S. acquisition of $251.1 billion in the first quarter.

Net U.S. sales of portfolio investment assets was $23.7 billion following net U.S. purchases of $304.1 billion in the first quarter. This change mostly reflected net U.S. sales of foreign equity and investment fund shares following net purchases in the first quarter.
Net U.S. liquidation of other investment assets was $125.5 billion following net U.S. acquisition of $86.4 billion in the first quarter. This change mostly reflected net foreign repayment of loans following net U.S. provision of loans to foreigners in the first quarter.
Net U.S. withdrawal of direct investment assets decreased $110.4 billion to $29.0 billion. The net withdrawal of direct investment assets reflected U.S. parent repatriation of previously reinvested earnings in response to the TCJA. For more information, see the box "Effects of the 2017 Tax Cuts and Jobs Act on Components of the International Transactions Accounts."

Liabilities

Net U.S. repayment of liabilities excluding financial derivatives was $57.7 billion in the second quarter following net U.S. incurrence of $441.1 billion in the first quarter.

Net U.S. incurrence of portfolio investment liabilities decreased $291.4 billion to $10.1 billion, reflecting both net foreign sales of U.S. equity and investment fund shares following net purchases in the first quarter and a decrease in net foreign purchases of U.S. long-term debt securities.
Net U.S. repayment of other investment liabilities was $92.4 billion following net incurrence of $81.6 billion in the first quarter. This change mostly reflected net U.S. repayment of loan liabilities following net incurrence of loans in the first quarter.

Financial derivatives

Transactions in financial derivatives other than reserves reflected second-quarter net borrowing of $17.0 billion following net lending of $29.0 billion in the first quarter.

Statistical Discrepancy (table 1)

The statistical discrepancy was −$32.9 billion in the second quarter following a statistical discrepancy of −$39.2 billion in the first quarter.

Updates to First Quarter 2018 International Transactions Accounts Aggregates

Billions of dollars, seasonally adjusted

	Preliminary estimate	Revised estimate
Current-account balance	−124.1	−121.7
Goods balance	−220.5	−220.8
Services balance	64.9	66.8
Primary-income balance	62.0	61.2
Secondary-income balance	−30.5	−28.9
Net lending (+)/borrowing (−) from financial-account transactions	−180.6	−160.9
Statistical discrepancy	−56.5	−39.2

Next release: December 19, 2018 at 8:30 A.M. EST

U.S. International Transactions, Third Quarter 2018

Full Release & Tables (PDF)

Text Full Release (Text)

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Release Highlights (PDF)

Technical

Yiran Xin

(301) 278-9546

yiran.xin@bea.gov

News Media

Jeannine Aversa

(301) 278-9003

Jeannine.Aversa@bea.gov

Additional Information

Resources

Stay informed about BEA developments by reading the BEA blog, signing up for BEA's email subscription service, or following BEA on Twitter @BEA_News.
Historical time series for these estimates can be accessed in BEA's interactive data application.
Access BEA data by registering for BEA's data application programming interface (API).
For more on BEA's statistics, see our monthly online journal, the Survey of Current Business.
BEA's news release schedule.
More information on these international transactions statistics will be provided next month in the Survey of Current Business.
More information on the international transactions accounts (ITAs) and a description of the estimation methods used to compile them is provided in U.S. International Economic Accounts: Concepts and Methods.

Definitions

The current account consists of transactions between U.S. residents and nonresidents in goods, services, primary income, and secondary income.

Goods are physical items with ownership rights that can be exchanged among institutional units through transactions.

Services transactions consist of transactions arising from productive activities that change the condition of the consumer or that facilitate the exchange of products and financial assets.

Primary income transactions include investment income and compensation of employees. Investment income is the return on holdings of financial assets and includes direct investment income, portfolio investment income, other investment income, and income on reserve assets. Compensation of employees is income for the contribution of labor inputs to the production process.

Secondary income consists of current transfers between residents and nonresidents. Unlike an exchange, a transfer is a transaction in which a good, service, or asset is provided without a corresponding return of economic value. Secondary income receipts and payments include U.S. government and private transfers, such as U.S. government grants and pensions, fines and penalties, withholding taxes, personal transfers (remittances), insurance-related transfers, and other current transfers.

The capital account consists of capital transfers between residents and nonresidents and the cross-border acquisition and disposal of nonproduced nonfinancial assets. Capital transfers include debt forgiveness and certain disaster-related nonlife insurance claims. Nonproduced nonfinancial assets include natural resources and contracts, leases, and licenses. Capital-account transactions are distinguished from current-account transactions in that capital-account transactions result in a change in the assets of one or both parties to the transaction without affecting the income or savings of either party.

The financial account consists of transactions between U.S. residents and nonresidents for direct investment, portfolio investment, other investment, reserves, and financial derivatives other than reserves.

Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise resident in another economy. Ownership or control of 10 percent or more of the nonresident entity's voting securities is the threshold for separating direct investment from other types of investment. Direct-investment transactions include transactions in equity (including reinvestment of earnings) and debt instruments.

Portfolio investment transactions consist of cross-border transactions involving equity and investment fund shares and debt securities, excluding those included in direct investment or reserve assets.

Other investment is a residual category that includes cross-border financial instruments other than those included in direct investment, portfolio investment, financial derivatives, and reserve assets. Other-investment transactions consist of transactions in currency and deposits, loans, insurance technical reserves, trade credit and advances, and, for liabilities, special drawing rights allocations.

Reserve assets are those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate, and for other related purposes such as maintaining confidence in the currency and the economy and serving as a basis for foreign borrowing. The major published components are monetary gold, International Monetary Fund (IMF) special drawing rights (SDRs), reserve position in the IMF, and other reserve assets.

Financial derivatives other than reserves consist of financial contracts that are linked to underlying financial instruments, commodities, or indicators. Transactions in financial derivatives consist of U.S. cash receipts and payments arising from the sale, purchase, periodic settlement, or final settlement of financial derivatives contracts. Transactions in financial derivatives are only available as a net value equal to transactions for assets less transactions for liabilities. A positive value represents net cash payments by U.S. residents to foreign residents from settlements of derivatives contracts (net lending) and a negative value represents net U.S. cash receipts (net borrowing).

The statistical discrepancy is the difference between net acquisition of assets and net incurrence of liabilities in the financial account (including financial derivatives) less the difference between total credits and total debits recorded in the current and capital accounts. The statistical discrepancy can also be calculated as the difference between net lending (borrowing) measured from financial-account transactions and net lending (borrowing) measured from current- and capital-account transactions.

The current-account balance is the difference between credits (exports and income receipts) and debits (imports and income payments) in the current account. The balance is a net measure of current-account transactions between the United States and the rest of the world. A positive balance indicates a current-account surplus. A negative balance indicates a current-account deficit.

Net lending (borrowing) measures the balance of funds supplied to the rest of the world. Net lending means that, in net terms, the U.S. economy supplies funds to the rest of the world. Net borrowing means the opposite. Net lending (borrowing) can be measured by current- and capital-account transactions or by financial-account transactions. Conceptually, the two measures are equal. In practice, the two measures differ by the statistical discrepancy.

Release and update cycle

Preliminary quarterly statistics for the ITAs are released in March, June, September, and December approximately 80 days after the end of the reference quarter. These statistics are updated the following quarter to incorporate new source data. Quarterly statistics are open for revision for at least the prior three years in annual updates released in June. Preliminary annual statistics are released in March along with statistics for the fourth quarter of the previous year. These annual statistics are open for revision for at least the prior three years in subsequent annual updates.

Related statistics

The ITAs constitute one part of a broader set of U.S. international economic accounts that, taken together, provide a comprehensive, integrated, and detailed picture of U.S. international economic activities.

The international investment position (IIP) accounts are released quarterly. Financial transactions that are reported in the ITAs are one type of change in position recorded in the IIP accounts.

Statistics on direct investment and multinational enterprises (MNEs) include annual statistics on the activities of MNEs, detailed annual and quarterly statistics on direct investment, and annual statistics on new investment in the United States.

Statistics on international services, released annually, include detailed annual information on trade in services and on services supplied through the channel of direct investment by affiliates of MNEs.

U.S. international trade in goods and services, released by BEA and the U.S. Census Bureau, provides monthly statistics on trade in goods and services.

List of News Release Tables

Table 1. U.S. International Transactions

Table 2. U.S. International Trade in Goods

Table 3. U.S. International Trade in Services

Table 4. U.S. International Transactions in Primary Income

Table 5. U.S. International Transactions in Secondary Income

Table 6. U.S. International Financial Transactions for Direct Investment

Table 7. U.S. International Financial Transactions for Portfolio Investment

Table 8. U.S. International Financial Transactions for Other Investment