Fiscal Study

The U.S. trade deficit narrowed more than expected in March on a record plunge in the value of imports, even as average oil prices surged to a new record, according to the Commerce Department, The International Herald Tribune reports:

The trade gap shrank to $58.2 billion in March, down 5.7 percent from a revised estimate of $61.7 billion in February. Wall Street analysts had expected the March gap to narrow to $61.3 billion. A $6.1 billion drop in the value of imports to $206.7 billion was the biggest on record. It was also the biggest percentage drop since December 2001, only months after the attacks on the United States and when the U.S. economy was in a downturn.

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President George W. Bush signed into law an economic stimulus package that is aimed at staving off a recession by offering tax rebates and incentives to businesses to invest, Reuters reports:
"Here are some details of the plan:
* The total package is worth about $168 billion over two years, roughly 1 percent of U.S. economic output, and will add directly to the U.S. federal deficit."

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Sales of existing homes fell in March, the seventh drop in the past eight months, as the spring sales season got off to a rocky start, Associated Press reports:

The median price of a home was down compared with a year ago, and some economists predicted home prices could keep falling for many more months given all the troubles weighing on housing, from a severe credit crunch to a rising tide of foreclosures.

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Federal Reserve policy makers, sensing both renewed inflation dangers and a possible economic boost from government rebate checks, may be nearing a pause in interest-rate cuts after the fastest reductions in two decades, Bloomberg reports.

In remarks this week, Fed Governor Kevin Warsh, San Francisco Fed President Janet Yellen and three other district- bank presidents voiced concerns about rising prices. Harvard University economist Martin Feldstein, who for almost 30 years has headed the group that decides the dates of recessions, called for an end to Fed rate cuts.

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Housing starts in the U.S. probably remained near a 16-year low in January, a sign the deepest housing recession in a quarter century will weigh on the economy well into 2008, according to economists, Bloomberg reports:

Housing starts rose 0.4 percent to an annual rate of 1.01 million, according to the median estimate in a Bloomberg News survey of economists before the Commerce Department's Feb. 20 report. Consumer prices rose 0.3 percent in January, a slower rate than the prior month, Labor Department figures the same day may show.

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It looks like Congress will give the president an energy bill this Christmas after all. But it's not the gift many lawmakers would have chosen, The Forbes reports:

The Senate, by a vote of 86-8, passed an energy bill that will raise fuel-economy standards by 40% and dramatically boost production of ethanol and other biofuels. But it is merely a shadow of the bill Democrats wanted just last week, which would have required utilities to get 15% of their electricity from renewable power. They also had proposed a nearly $22 billion tax package that would have allowed Congress to extend existing production and investment incentives for wind and solar power, raising money from Big Oil to help offset the spending.

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The dollar posted its biggest weekly drop against the euro since April 2006 as a slumping housing market and upheaval in Pakistan made U.S. financial assets less attractive to international investors, Bloomberg reports:

The U.S. currency fell against all 16 most-actively traded currencies except Mexico's peso this week as traders raised bets that the Federal Reserve will cut borrowing costs in January. The dollar has lost 10.4 percent against the euro and 5.7 percent versus the yen in 2007, and the European currency is up 5.2 percent versus the yen, its eighth annual increase.

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U.S. President George W. Bush unveiled a plan aimed to avoid more looming subprime mortgage problems that threaten to derail the economy, CBC News reports:

At a White House news conference, Bush said the plan will freeze interest rates on some qualifying subprime mortgages for five years.
The rate freeze will apply to subprime loans made between the start of 2005 and July 30, 2007, with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

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Posted by fiscalstudy at 6:51 AM | Permalink | Comments (0)

U.S. President George W. Bush unveiled a plan aimed to avoid more looming subprime mortgage problems that threaten to derail the economy, CBC News reports:
At a White House news conference, Bush said the plan will freeze interest rates on some qualifying subprime mortgages for five years.
The rate freeze will apply to subprime loans made between the start of 2005 and July 30, 2007, with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

Posted by fiscalstudy at 6:51 AM | Permalink | Comments (0)

Home sales in the U.S. dropped in August to the lowest level in almost six years while consumer spending gained, signs that the fallout from a housing recession has yet to reach the biggest part of the economy, according to economists, Bloomberg reports:

Purchases of new and existing homes fell to a 6.32 million pace, the fewest since November 2001, from a 6.62 million rate in July, according to the median estimate of economists surveyed by Bloomberg News. Americans spent 0.4 percent more in August for a second month, a Commerce Department report may also show. Real-estate sales and prices are likely to keep falling, extending an almost two-year slump, as concern over subprime loans has made mortgages more difficult to get. Rising wages have so far shielded consumers, whose spending accounts for more than two-thirds of the economy, from the weakening in home values that's shaken their financial security.

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Posted by fiscalstudy at 6:38 AM | Permalink | Comments (0)

Home sales in the U.S. dropped in August to the lowest level in almost six years while consumer spending gained, signs that the fallout from a housing recession has yet to reach the biggest part of the economy, according to economists, Bloomberg reports:

Purchases of new and existing homes fell to a 6.32 million pace, the fewest since November 2001, from a 6.62 million rate in July, according to the median estimate of economists surveyed by Bloomberg News. Americans spent 0.4 percent more in August for a second month, a Commerce Department report may also show. Real-estate sales and prices are likely to keep falling, extending an almost two-year slump, as concern over subprime loans has made mortgages more difficult to get. Rising wages have so far shielded consumers, whose spending accounts for more than two-thirds of the economy, from the weakening in home values that's shaken their financial security.

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Posted by fiscalstudy at 6:38 AM | Permalink | Comments (0)

Home sales in the U.S. dropped in August to the lowest level in almost six years while consumer spending gained, signs that the fallout from a housing recession has yet to reach the biggest part of the economy, according to economists, Bloomberg reports:

Purchases of new and existing homes fell to a 6.32 million pace, the fewest since November 2001, from a 6.62 million rate in July, according to the median estimate of economists surveyed by Bloomberg News. Americans spent 0.4 percent more in August for a second month, a Commerce Department report may also show. Real-estate sales and prices are likely to keep falling, extending an almost two-year slump, as concern over subprime loans has made mortgages more difficult to get. Rising wages have so far shielded consumers, whose spending accounts for more than two-thirds of the economy, from the weakening in home values that's shaken their financial security.

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Posted by fiscalstudy at 6:38 AM | Permalink | Comments (0)

The federal deficit so far this budget year is running sharply lower, driven by record revenues pouring into government coffers, Associated Press reports:

The Treasury Department reported that the government produced a deficit of $157.3 billion for the budget year that began last Oct. 1. That's a substantial improvement from the red ink figure of $239.6 billion produced for the corresponding 10-month period last year.
The lower year-to-date deficit was the result of a record of $2.12 trillion in revenues. Spending, however, was higher — $2.27 trillion, which also marked an all-time high.

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U.S. Federal Reserve Chairman Ben Bernanke said that subprime mortgage losses could hit $100 billion and threaten consumer spending, but he sought to reassure lawmakers that the central bank was working quickly to strengthen lending regulations, Reuters reports:

"The credit losses associated with subprime have come to light and they are fairly significant," Bernanke told the Senate Banking Committee in a second day of testimony on the Fed's twice-yearly economic report.

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Posted by fiscalstudy at 11:26 AM | Permalink | Comments (0)

Federal Reserve Chairman Ben S. Bernanke predicted American economic growth will pick up ``a bit'' next year and inflation will recede, Bloomberg reports:

``The U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening'' in 2008, he told the House Financial Services Committee in Washington. ``Core inflation should edge a bit lower, on net, over the remainder of this year and next year.''

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Posted by fiscalstudy at 5:47 PM | Permalink | Comments (0)

Growth in the service sector rose unexpectedly in June, while the job market also appeared to pick up some steam, according to reports that signaled strength in the economy, Reuters reports:

The Institute for Supply Management's services index rose to 60.7 in June from 59.7 in May. Analysts had expected the index to ease to 58.0. A number above 50 indicates growth in the sector.

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The U.S. Federal Reserve did as expected by economists and left its key interest rate steady at 5.25 per cent, CBC News reports:

The U.S. central bank also changed its tone on inflationary pressures, dropping the word "elevated" from its description of core inflation in the commentary that accompanied the decision.

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Posted by fiscalstudy at 11:12 AM | Permalink | Comments (0)

Those who keep a close eye on the state of America’s economy might be forgiven for being puzzled: there are reasons aplenty to feel both gloom and cheer, The Economist reports:

On June 28th revised first-quarter GDP figures showed that the economy has not been growing all that briskly (it expanded at an annualised pace of just 0.7%). A report from the Federal Reserve noted that price increases have been moderating of late. Despite this, its main concern remains inflation, rather than stimulating the economy.

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Posted by fiscalstudy at 1:46 AM | Permalink | Comments (0)

Keeping inflation under control as the economy emerges from a yearlong sluggish spell is certain to be a matter of lively debate for Federal Reserve policymakers, Associated Press reports:

Fed Chairman Ben Bernanke and his central bank colleagues open a two-day meeting, where the economy's current and future performance will be assessed. The strength of the anticipated economic rebound, the depth of the housing slump, problems with risky mortgages, the state of the employment climate, and the direction of gasoline and other energy prices will figure prominently into those discussions.

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Posted by fiscalstudy at 10:06 AM | Permalink | Comments (0)

Amid growing signs of a US economic rebound taking root, the Federal Reserve appears likely to hold interest rates steady again at its upcoming policy meeting, according to analysts, AFP reports:

The central bank, which has consistently highlighted inflation dangers while playing down risks of an economic slump despite financial market expectations to the contrary, is expected to maintain that theme at its two-day meeting opening.
The federal funds rate, at 5.25 percent for the past year, is unlikely to be changed anytime soon, say Fed watchers.

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Posted by fiscalstudy at 1:48 AM | Permalink | Comments (0)

The U.S. economy should expand modestly in coming months as a healthy job market continues to trump weakness in housing prices, a gauge of future business activity showed, Associated Press reports:

The Conference Board said its index of leading economic indicators rose a higher-than-expected 0.3 percent in May, boosted by rising stock prices, higher consumer expectations and the availability of jobs.
Economists said that jobs should continue to be plentiful, despite an unexpected surge in jobless claims last week.

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Posted by fiscalstudy at 1:40 AM | Permalink | Comments (0)

The U.S. economy should expand modestly in coming months as a healthy job market continues to trump weakness in housing prices, a gauge of future business activity showed, Associated Press reports:

The Conference Board said its index of leading economic indicators rose a higher-than-expected 0.3 percent in May, boosted by rising stock prices, higher consumer expectations and the availability of jobs.
Economists said that jobs should continue to be plentiful, despite an unexpected surge in jobless claims last week.

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Posted by fiscalstudy at 9:40 PM | Permalink | Comments (0)

Construction of new homes fell in May as the nation's homebuilders were battered by the crisis in subprime lending and rising mortgage rates, Associated Press reports:

Housing, which is struggling through its biggest downturn in 16 years, is expected to continue to face troubles in the months ahead before starting to stage a sustained rebound in 2008.

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Wall Street's new masters of the universe, hedge funds and private-equity partnerships, are suddenly finding the universe a less-hospitable place, Wall Street Journal reports:

The latest pressure arose this week when the Senate Finance Committee decided to introduce a bill to tax financial-services partnerships that are publicly traded, as giant Blackstone Group soon will be, at the same higher rate paid by corporations.
This came as a private-equity industry group in the United Kingdom came under scathing attack in a committee of Parliament as it addressed the buyout firms' tax rate there, only about 10%.

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Posted by fiscalstudy at 1:50 AM | Permalink | Comments (0)

Retail sales rose more than twice as much as expected in May, while import prices surged, adding to recent data suggesting the U.S. economy is recovering strongly after a slowdown in the first quarter, Reuters reports:

Sales by U.S. retailers rose 1.4 percent in May as consumers shrugged off higher gasoline prices and increased their spending on cars, clothing and building materials, a Commerce Department report showed.

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Posted by fiscalstudy at 11:39 AM | Permalink | Comments (0)

Although there has been anxiety in financial markets all week about inflation, the Federal Reserve does not have an itchy trigger finger to hike rates, according to an expert on inflation, Market Watch reports:

Instead, inflation has been like a lumpy chair in which one can't get comfortable.
Core consumer price inflation increased 2% year-over-year in April, making it the first time in 14 months that core prices have been inside the Fed's unofficial target zone of 1% to 2%. See full story. In addition, the core CPI over the last three months has risen only 1.9%.

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Posted by fiscalstudy at 2:31 PM | Permalink | Comments (0)

Federal Reserve Chairman Ben Bernanke predicted the economy will rebound from its anemic start of the year even if the housing slump persists. Wall Street slid, taking the news as a sign the Fed won't lower interest rates, Associated Press reports:

Economic growth in the year's first three months nearly stalled, logging just a 0.6 percent pace. It was the worst quarterly showing in more than four years.
However, Bernanke said he believes some forces that figured prominently in that poor performance — including a bloated trade deficit, cutbacks by businesses in inventory investment and weak federal defense spending — "seem likely to be at least partially reversed in the near term."

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Posted by fiscalstudy at 12:53 PM | Permalink | Comments (0)

The US economy appeared to be pulling out of a stall as figures showing surprisingly strong job creation and factory expansion pushed stocks into record territory, Financial Times reports:

With inflation also slightly softer, there is little immediate pressure on the
Federal Reserve to change interests rates in either direction.
Alan Ruskin, a currency strategist at RBS, said the figures "should send another dagger in the heart" of those investors betting that the Fed would cut rates.

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Posted by fiscalstudy at 11:43 AM | Permalink | Comments (0)

Growth in the U.S. economy cooled in the first quarter to an annual rate of only 0.6 per cent, the weakest showing since the end of 2002, CBC News reports:

The U.S. Commerce Department said Thursday that growth in the January-to-March period was down from an earlier government estimate of a 1.3 per cent annual expansion rate.
The first-quarter figure was also down sharply from the 2.5 per cent annualized rate seen in the last three months of 2006.

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The US global merchandise trade and current account deficits rose to $857 billion in 2006. This amounted to about 6.5 per cent of our GDP, twice the previous record of the middle 1980s and by far the largest deficit ever recorded by a single country1. The deficits have risen by an annual average of $100 billion over the past four years, Institute for International Economics reports:

China’s global current account surplus soared to about $250 billion in 2006, more than 9 per cent of its GDP. Its trade surplus has doubled again in the first quarter of 2007, suggesting that its current account deficit will exceed $300 billion in 2007—the largest ever recorded by any country. China has become by far the largest surplus country in the world, recently passing Japan and far ahead of all others. Its foreign exchange reserves have also passed Japan’s to become the largest in the world and now exceed $1 trillion, an enormous waste of resources for a country where most of the huge population remains very poor.

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Posted by fiscalstudy at 6:48 AM | Permalink | Comments (0)

The US economy appears set for a soft landing, according to the OECD, but it warned that the troubled sub-prime mortgage sector still poses a major risk, AFP reports:

"Output has slowed to below its potential growth rate, reflecting a dramatic contraction in house building," the Organisation for Economic Cooperation and Development said in its twice-yearly report on the global economy.

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