Largest Housing Plunge In 11 Years

WASHINGTON (Reuters) – The U.S. current account trade gap widened to a record $164.71 billion in the third quarter, data showed on Thursday. The deficit, the broadest measure of U.S. trade, was not as great as feared, spurring a dollar rally.

In separate reports, the government said first-time claims for jobless aid posted their sharpest drop in three years last week, but housing starts in November logged their biggest plunge in nearly 11 years.

Prices for U.S. government bonds slipped in the wake of the mixed economic news, but the dollar shot higher as traders breathed a collective sigh of relief because the trade shortfall was much smaller than the $170 billion Wall Street had braced for.

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The current account gap — running at 5.6 percent of the size of the U.S. economy — grew by just $318 million in the July-September period from a revised second-quarter reading of $164.39 billion, the Commerce Department (news – web sites) said. The second-quarter gap was first reported as $166.18 billion.

The dollar has fallen roughly 5 percent against the euro this year and some 4 percent against a basket of major currencies (^DXY – news) amid worry that foreign investors’ willingness to finance the huge trade deficit will fade.

Economists have warned of the potential for a steeper dollar drop if the supply of overseas cash that has helped fuel U.S. consumption begins to dry up.

Stephen Cecchetti, former research director at the New York Federal Reserve (news – web sites) Bank, blamed bloated U.S. budget deficits for the troubling current account shortfall.

“The problem with the current account is domestic saving,” he said. “It requires a fiscal policy solution.”

British Chancellor of the Excheckr Gordon Brown said on Thursday he would take up the issue of the twin U.S. trade and budget deficits, which he said were causing global economic stress, in meetings with U.S. officials in coming days.

“They have got to set a clear path for showing that these can be dealt with over the next period of time,” he said shortly before jetting off to New York.

President Bush (news – web sites), who pushed big tax cuts through Congress during his first term, restated Washington’s commitment to getting its fiscal house in order as he met with Italian Prime Minister Silvio Berlusconi on Wednesday.

JOB MARKET BRIGHTENS, HOUSING SOURS

A separate report showed initial claims for jobless benefits fell by much more than expected in the week ending Dec. 11 to 317,000, their lowest level since July. Wall Street economists had expected only a slight dip to 340,000.

The Labor Department (news – web sites) said there were no special factors to account for the drop, the largest since December 2001, but cautioned claims are often volatile in the holiday period toward the end of the year.

“It brings the claims number back down to a level that’s really very positive,” said Patrick Fearon, economist at A.G. Edwards & Sons in St. Louis.

A four-week moving average of filings, which smoothes weekly fluctuations to provide a better picture of underlying trends, retreated to 337,750 from a revised 342,250.

A third report showed housing starts unexpectedly fell 13.1 percent last month, the biggest decline since a 17 percent tumble in January 1994, as groundbreaking activity dropped across the nation.

Housing starts slid to an annual rate of 1.771 million units in November from an upwardly revised 2.039 million clip a month earlier, the Commerce Department said.

Economists had expected starts to ease only slightly and some saw the report as a sign of brewing trouble for the long high-flying U.S. housing sector.

“The housing market is finally beginning to cool off. This is the beginning of the end,” said David Wyss, chief economist for Standard & Poor’s. “The housing number is scary.”

Permits for future groundbreaking, an indication of builder confidence, were less disappointing, falling just 1.5 percent to a 1.988 million unit pace.