United States Council of Economic Advisers publishes balance of payments analysis, says current account remains the most reliable deficit measure

The Council of Economic Advisers has published an analytical paper on how balance-of-payments deficits should be measured, concluding that the current-account balance remains the most reasonable and reliable measure under modern reporting and market conditions. The paper argues that older alternatives, especially the historical basic balance, can no longer be reconstructed credibly because financial innovation and deeper markets have blurred the distinction between long-term and short-term capital flows. On that basis, CEA staff say any modern attempt to approximate the basic balance would include, at most, the current-account balance, the capital-account balance and net foreign direct investment, while excluding the rest of the financial account because those instruments are now too liquid and volatile to capture the concept the measure was meant to isolate. The capital account is described as small relative to the current account, meaning a current-account-plus-capital-account measure would not differ materially from the current account alone. The paper also says available data do not allow a credible separation of the non-volatile components of foreign direct investment from more volatile flows. The publication also reviews recent U.S. external trends, showing the current account has been in persistent deficit since the 1990s and stood at negative 4.1% of GDP at the end of 2024. It identifies the trade balance as the main driver, with the annual goods trade deficit rising by more than 40% over the past five years to USD 1.2 trillion in 2024 and remaining at about USD 1.2 trillion in 2025.