The issue is NOT the spending per se – but growing imbalance in the USA spending. By simply trying to cut spending, the imbalances will remain and grow. The major item out of balance is entitlements.
Entitlements are the major spending item for the Federal Government, and are overwhelming the budget, squeezing out investments the government needs to make in infrastructure – as well as spending for other vital programs.
A way to look at the underlying issue of government spending is to compare various government revenue and spending items to wages.
It is interesting that wages and taxes have remained roughly in correlation. It is the growth of entitlement spending that should be raising alarm bells. This does not take a Ph.D. to understand there is a serious problem – and without a massive rework of entitlement methodology, stopping the debt growth is impossible.
Most Americans in their lifetimes will receive Government entitlement benefits – especially the old and disabled. The issue is not whether these benefits should be delivered – but how to do it in a way not to kill the golden goose (the Main Street economy).
Economic News this Week:
The Econintersect economic forecast for July 2011 indicates the soft patch will continue. This is based on “less good” data, not data suggesting the economy is falling off a cliff.
This week the Weekly Leading Index (WLI) from ECRI was unchanged from a downwardly revised 1.7%. This level implies the business conditions six months from now will be approximately the same compared to today. This index is eroding and clearly in a downtrend.
Initial unemployment claims fell 22,000 to 405,000 and remains elevated. The real gauge – the 4 week moving average – fell only 3,750 due to backward revisions. Because of the noise (week-to-week movements), the 4 week average remains the reliable gauge. Historically, claims exceeding 400,000 per week usually occurs when employment gains less than the workforce growth.
The elevated initial unemployment claims remains an unusual development at this point in a “recovery”. We are beginning to see some stronger economic data this week, but the terrible June Jobs numbers from last week still resonate. However, Econintersect tends to believe the monthly employment situation may be more like the better (but mediocre) ADP employment numbers (analysis here) – as ADP methodology likely produce a better month-over-month metric of changes to employment.
The data this week does not support the premise the economy is weakening except for the mysterious YoY decline in container imports. Opinion – whether from the business or consumers – continues to be at recession levels. Although I am not a lover of opinion surveys as they are a rear view mirror, this funk eventually spreads and the rear view becomes future reality.
Weekly Economic Release Scorecard:
|June Sea Container Counts
||A 4.5% YoY contraction in imports after 16 straight months of YoY growth
|June Consumer Price Index
||The core inflation rate is approaching the Fed’s target inflation rate
|July Empire State Manufacturing
||Survey remains in negative territory for the second month
|July Michigan Consumer Sentiment
||Down Big Time
||Major drop and well below consensus
|June Industrial Production
||The data is flat – and that is good because the surveys were suggesting IP would fall
|Advance June Retail Sales
||Likely up 0.5% on record June Sales
|June Producer Price Index
||Down to 7.0%
||Moderation is solely caused by better crude prices in June – literally everything else is rising
|June Export Import Prices
||Import prices up 13.6% YoY
||Export prices up 9.9% YoY.
|May Job Openings and Labor Turnover
||Contradictory trends in May JOLTS provides only half an answer to the bad employment data
|May Trade Balance
||Growing trade deficit is a sign the economy is not softening
|June NFIB Sentiment Survey
||The report turned into a rant against government policies
|June Diesel Usage
||This data suggests the economy may be entering a new growth cycle
||Chris Porter: Will demographics lead to a home building expansion cycle?
|June Rail Traffic
||Coal shipping is down. Ignoring coal, rail traffic is up strongly
||Rick Davis reviews the current data
|Oil Price Spikes
||Lance Roberts shows the psychological “cost pressure” impacting consumer behavior.|
||Graphic proof big business is the cause of poor employment numbers since 2001
|June Jobs Data
||A leading indicator in the BLS report is still strong – the economy is still expanding
||Frank Li says age makes a difference in selecting a President
||Ajay Shah suggests policy issues concerning trading of Rupees.
||Krugman is criticized for making debt ceiling issue partisan
||John Lounsbury: the mortgage settlement is a whitewash
||Warren Mosler’s plan to end Greek crisis considered by EU
||Elliott Morss: open letter to Greek pres. recommends default
||Shah Gilani reviews the mechanics of the volatility index
||Sanjeev Kulkarni: the USA and Europe may become Chinese economic colonies
|USA Corporate Earnings
||Jeff Miller says that corporate earnings have grown even if the economy has not
||Dee Gill suggests some defensive stocks for today’s volatility
Bankruptcies this Week: Bridgetech Holdings International, Omega Navigation Enterprises