The U.S. current-account deficit narrowed significantly in the fourth quarter as Americans earned more on their foreign investments than foreigners earned on their U.S. holdings, reversing a trend from the prior quarter.
The overall current-account deficit shrank to a seasonally adjusted $190.7 billion in the fourth quarter from a revised $239.1 billion in the third quarter, a decline of $48.4 billion or 20.2 percent, the Commerce Department said Wednesday. The deficit fell to 2.4 percent of current-dollar gross domestic product, down from 3.1 percent in the third quarter.
The current account tracks movements of goods and services across borders as well as income from investments and other transfers such as remittances and foreign aid. It is the broadest measure of the nation’s economic transactions with the rest of the world.
The improvement was driven primarily by a shift in primary income — the balance of what Americans earn on investments abroad versus what foreign residents earn on U.S. assets — which swung from a deficit in the third quarter to a surplus in the fourth. A narrower goods-trade deficit also contributed.
The primary income swing is notable because the U.S. carries a net international investment position of negative $27.54 trillion, meaning foreigners own far more American assets than Americans own abroad. Despite this lopsided balance sheet, U.S. investors tend to hold higher-yielding assets overseas — equity stakes and direct investments in foreign businesses — while foreign holdings in the U.S. skew toward lower-yielding Treasurys and bonds. When returns on those foreign holdings rise or payments on U.S. liabilities fall, the income balance can shift rapidly.
Exports of goods and services and income receipts rose $32.4 billion to $1.33 trillion in the fourth quarter, reflecting higher goods exports and larger primary income receipts. Imports and income payments fell $16.0 billion to $1.52 trillion, driven by lower primary income payments and reduced goods imports.
Third-quarter figures were revised to show a wider deficit than initially reported. The current-account gap was revised to $239.1 billion from a preliminary estimate of $226.4 billion, a $12.7 billion widening. The primary income balance was the largest source of the revision, swinging from an initially reported $5.2 billion surplus to a $2.5 billion deficit. The services surplus was also revised lower, to $86.5 billion from $89.2 billion.
For the full year, the current-account deficit narrowed by $69.3 billion, or 5.8 percent, to $1.12 trillion in 2025. The annual deficit fell to 3.6 percent of GDP from 4.0 percent in 2024, as exports and income receipts grew faster than imports and income payments.
The nation’s net international investment position was essentially flat at the end of the fourth quarter at negative $27.54 trillion, compared with a revised negative $27.55 trillion at the end of the third quarter. For the full year, however, the position deteriorated by roughly $1 trillion, widening from negative $26.54 trillion at the end of 2024. U.S. assets totaled $42.96 trillion and liabilities totaled $70.49 trillion at year-end.
Many economists view the report as broadly encouraging. The narrowing deficit suggests U.S. exports are finding buyers abroad, and the primary income surplus shows that American investors continue to earn more on their foreign holdings than foreigners earn here — even as the nation’s net debtor position deepens. In this view, the U.S. can sustain large current-account deficits indefinitely because the return differential keeps the overall debt burden manageable.
Others argue the report underscores how lopsided the benefits of the current global trade arrangements are. The annual deficit still exceeded $1 trillion, meaning American consumers continued to send far more money abroad for foreign-made goods than the country earned back from exports. And while the primary income surplus sounds reassuring, the gains flow primarily to corporations and wealthy investors with large overseas portfolios — not to factory workers and communities that lost jobs to import competition. The nation’s net international investment position, meanwhile, deteriorated by another $1 trillion over the course of 2025, raising questions about how long even favorable return differentials can offset an ever-growing pile of foreign obligations.
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