The U.S. current account deficit narrowed by $6.3 billion, or 2.0%, to $303.9 billion in Q4 2024, improving from a revised Q3 deficit of $310.3 billion and coming in better than market expectations of a $325.5 billion gap.
US current account gap narrows in fourth quarter
The decline was primarily driven by an improvement in the primary income balance, which shifted to a surplus of $2.3 billion from a deficit of $13.8 billion in the previous quarter. This change was largely attributed to higher direct investment income, primarily from corporate earnings abroad.
Additionally, the secondary income gap decreased to $56.2 billion from $60.1 billion, reflecting lower net outflows from personal transfers and government transactions. The services surplus also expanded, rising to $76.1 billion from $73.2 billion, supported by increased receipts from travel, financial services, and charges for intellectual property use.
Goods deficit widens
However, the goods deficit widened significantly to $326.1 billion from $309.6 billion, as exports fell by $10.8 billion. The decline was driven by lower shipments of capital goods, particularly civilian aircraft, computer accessories, and semiconductors, alongside a drop in consumer goods exports, notably medicinal, dental, and pharmaceutical products. At the same time, imports remained relatively stable, keeping the trade deficit elevated.
For the full year 2024, the current account deficit widened by 25.2% to $1.13 trillion, representing 3.9% of GDP. The annual deterioration was largely driven by a persistent trade imbalance, as goods exports faced headwinds from slowing global demand, supply chain disruptions, and the strong U.S. dollar making American products more expensive abroad. Meanwhile, foreign direct investment earnings provided some relief, partially offsetting the trade deficit.
What will influence current account trend
Looking ahead, the trajectory of the current account deficit will depend on several factors, including global economic conditions, exchange rate movements, trade policy developments, and shifts in investment flows. If the U.S. dollar remains strong, exports could face further pressure, while any tariff-related disruptions may also impact trade balances. However, a potential softening in global monetary tightening and improved foreign demand for U.S. services could help cushion the deficit in the coming quarters.
