The Commerce Department reported Thursday that the current account deficit in the October-December quarter narrowed to $110.4 billion, down 1.8 per cent from the previous quarter. The improvement reflected gains in Americans' earnings on their foreign investments and stronger earnings on service trade, a category that covers such things as airline travel.
For the year, the current account deficit widened to $475 billion, a 1.9 per cent increase from 2011. It was the largest annual imbalance since 2008.
The current account is the broadest gauge of trade. It tracks not only the sale of goods and services but also investment flows.
Economists closely watch the current account because it shows how much the United States must borrow from foreigners.
Many economists believe the current account deficit will widen slightly in 2013 as a small pickup in global growth helps U.S. export sales but these gains are outpaced by rising demand in the United States for imports.
The current account deficit hit an all-time high of $800.6 billion in 2006. It then shrank after a deep recession reduced U.S. demand for foreign goods by a greater amount that U.S. export sales diminished.
The trade deficit has been widening again after the U.S. recession ended in June 2009.
The slight narrowing of the deficit in the fourth quarter left it at an equivalent of 2.8 per cent of the total economy, as measured by the gross domestic product.
The overall economy grew at a scant annual rate of 0.1 per cent in the October-December quarter. But recent signs of strength have many economists boosting their forecasts for growth in the current January-March quarter to around 2 per cent or better.