Though the deficit would decline after that, it would still be $190 billion in 2008.

With Japan, the deficit declined by about $150 million, to $7 billion.

In the year that ended Sept. 30, the deficit declined to $203.4 billion, the lowest level since 1989.

Once American businesses and consumers see the deficit declining, their economic behavior will change, the theory goes.

The deficit with Canada declined by 26.3 percent, to $970 million, the lowest in two years.

The deficit declined, but not by half, from $412 billion to $248 billion.

But even that accounting shows the deficit is still declining in relation to the economy.

And contrary to other forecasts, the deficit could also decline next year, they added.

The agency predicted that the deficit for 2007 would decline to about $200 billion.

Many private forecasters believe, however, that the deficit will decline only slightly from the 1986 record.