Daily Archives: April 10, 2008 @ 4:49 pm (Thursday)

AP: Budget deficit up due to spending increases

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While revenue growth is slowing, it is still positive.

Might be the suspected 2007 spending that was moved forward to 2008 that is helping spending increase so much and support GDP into the election. And the new fiscal package kicks in soon as well.

Government spending, this year, should top $3 trillion – still a modest percent of GDP by world standards.

Federal budget deficit at all-time high for first half

by Martin Crutsinger

The federal deficit through the first half of this budget year is at an all-time high, underscoring the pressure the budget is coming under as the overall economy slumps.

The Treasury Department reported Thursday that the deficit through the first six months of the budget year totaled $311.4 billion (euro196.2 billion), up 20.5 percent from the same period a year ago. That was the largest deficit for the first half of a budget year on record, surpassing the old six-month mark of $302 billion set in 2006.

The Bush administration, when it sent its budget proposal to Congress in February, estimated that the deficit for the whole year will total $410 billion (euro258.3 billion), putting it very close to the all-time high in dollar terms of $413 billion (euro260.2 billion).

However, private economists are forecasting a much bigger deficit, reflecting the U.S.’s current economic problems and a $168 billion (euro105.83 billion) stimulus package that Congress has passed in an effort to jump-start growth. Rebate checks will be mailed to 130 million households starting next month in an effort to boost consumer spending and make sure that any downturn is short-lived and mild.

The Treasury’s monthly budget report showed that revenues for the first six months of the budget year, which began on Oct. 1, totaled $1.146 trillion (euro720 billion), up 2.2 percent from last year. However, government spending was up by a much faster 5.7 percent, rising to $1.457 trillion (euro920 billion). Both the spending and the revenues were records for the first six months of a budget year.

The difference between revenues and spending left a deficit of $311.4 billion (euro196 billion), compared to a deficit for the same period in the 2007 budget year of $258.4 billion.

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Market update

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Inflation ripping:
Oil up, grains and commodities up, and dollar down, as continued US demand at higher prices for energy transfers more $US to foreigners who don’t want to accumulate them.

Weakness continues:
Stocks down and credit spreads looking wider, and claims lower but have nonetheless worked their way higher since year end and only rising exports keep GDP at ‘muddling through’ levels.

Interest rates down:
As markets continue to believe Fed won’t even begin to act vs inflation, and will do ‘whatever it takes’ to narrow the output gap to zero, in total contrast to mainstream economic theory.

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Re: Pension fund passive commodity strategies

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(an interoffice email)

>
>   On Wed, Apr 9, 2008 at 4:05 PM, Pat wrote:
>
>   What about the continued allocation increases from non-end
>   users of commodities? From what I’ve read allocations by
>   pensions have gone higher even with the rising prices as well
>   as a whole host of new entrants (ETFs, HF’s, etc…) Are these
>   compounding the problem or are they the root of the
>   commodity price inflation?
>
>

passive commodities are part of the landscape for sure:

  1. put upward pressure on competitive commodity spot prices
  2. put downward pressure on the $
  3. add to gdp
  4. in general, help ‘monetize’ saudi crude price hikes
  5. put upward pressure on crude futures
  6. serves no public purpose
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2008-04-10 US Economic Releases

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2008-04-10 Trade Balance

Trade Balance (Feb)

2008-04-10 Trade Balance TABLE

Trade Balance TABLE

Survey -$57.5B
Actual -$62.3B
Prior -$58.2B
Revised -$59.0B

Exports still accelerating- up 2% over last month, a 26%+ annual rate, and 20.8% year over year.

Looks like an anomaly with imports, up 3.1% month over month and petroleum imports down. Very odd for non petroleum imports to be up – look for adjustments with next month’s number.

While this February number means Q1 GDP will be revised lower, the March report is likely to more than reverse this.

2008-04-10 Initial Jobless Claims since 1998

Initial Jobless Claims (Apr 5)

Survey 383K
Actual 357K
Prior 407K
Revised 410K

Back down but 4 week moving average still inching up some.

Not at recession levels yet.

2008-04-10 Continuing Claims since 1998

Continuing Claims (Mar 29)

Survey 2935K
Actual 2840K
Prior 2937K
Revised n/a

This lags a week. It has moved up over the last year, but still far from previous recession levels.

2008-04-10 ICSC Chaing Stores Sales YoY

ICSC Chain Stores Sales YoY (Mar)

Survey 0.9%
Actual -0.5%
Prior 1.9%
Revised n/a

Consumer remained weak in March – that’s what an export economy looks like.

2008-04-10 Monthly Budget Statement

Monthly Budget Statement (Mar)

Survey -$70.0B
Actual -$48.1B
Prior -$96.3B
Revised n/a

2008-04-11 Monthly Budget Statement TABLE

Monthly Budget Statement TABLE

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WSJ: Taul Paul chimes in

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The FOMC take this very seriously:


Volcker’s Demarche

On the dollar, Mr. Volcker’s blunt talk of crisis is a welcome tonic to the devaluationist consensus that now dominates Washington. The world has been staging a run on the greenback, with damaging results if it continues. Mr. Volcker noted that when “concerns about recession are rife,” the central bank will be tempted to “subordinate the fundamental need to maintain a reliable currency” to the impulse to shore up a flagging economy. The danger is that you lose both battles, as the U.S. did in the 1970s, and wind up with stagflation.

The present climate, Mr. Volcker told his audience, reminded him of nothing so much as the early 1970s. Then as now, certain commodity prices were rising fast – he cited oil and soybeans as two examples. Then as now too, these were explained away as speculative price run-ups and not as a harbinger of a broader inflationary trend.

We all know how that ended, and Mr. Volcker knows better than anyone. He was the one who, at the end of that decade, had to step in and raise interest rates to punitive levels to break the back of that bout of inflation. With commodity prices spiking again – soybeans are $12 a bushel today compared to $7 a year ago – Mr. Volcker is warning the Fed not to let inflationary expectations become embedded once again.

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