LAST WEEK

News & Commentary Weekly Highlights:

• Wall Street Journal:  Stocks, Bonds Drop Amid Concerns About End of Easy Money (Friday)
• The Hill: Lawmakers struggle to steer spotlight back to deficit (Thursday)
• Washington Examiner: GOP senator borrows idea from DoD to cut federal spending (Thursday)
• Real Clear Markets: Negative Rates Are a Counterproductive Reach Beyond the Limits of Rate Stimulus (Wednesday)
• CRFB: Running on Empty? Fiscal Space and the Next Recession (Wednesday)

 

Top Economic Indicator Highlights:

Federal Reserve Board of Governors Beige Book

• Highlights from the Federal Reserve Board’s Beige Book:
  • Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest pace on balance during the reporting period of July through late August.
  • Employment expanded at moderate pace since the previous report.
  • Wage growth ranged from flat to strong across the Districts, but most reported that wage pressures remained fairly modest.
  • Overall price inflation was modest.
  • Noteworthy: The Fed’s Beige Book (issued two weeks before FOMC meetings) indicates more of the same: sluggish growth, moderate inflation, and stagnant wages.

 

JEC Releases:

• Labor Review: Context for the August Labor Report (Friday)
• Coats Discusses National Debt Crisis during JEC Hearing (Thursday)

 

THIS WEEK

Upcoming Economic Reports & Releases:

Major Indicators

• Survey of Consumer Expectations (11:00am, Mon)
• Exports/Imports (8:30am, Wed)
• Advance Retail Sales (8:30am, Thu)
• Empire State Manufacturing Survey (8:30am, Thu)
• Jobless Claims (8:30am, Thu)
• Philly Fed Manufacturing Survey (8:30am, Thu)
• Producer Price Index (8:30am, Thu)
• Industrial Production and Capacity Utilization (9:15am, Thu)
• Business Inventories (10:00am, Thu)
• Business Leaders Survey (8:30am, Fri)
• Consumer Price Index (8:30am, Fri)
• Real Earnings (8:30am, Fri)
• Michigan Consumer Sentiment (Preliminary) (10:00am, Fri)
• Michigan Inflation Expectations (Preliminary) (10:00am, Fri)

Chart of the Week:

 

 

The Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) report an annual debt-to-GDP ratio that measures how much the government owes U.S. and foreign investors (publicly held debt) against what the economy produces (Gross Domestic Product).  This ratio measures the size of the future tax burden relative to the tax base as reflected by GDP. 

 

During recessions, the size of the economy shrinks, and debt tends to rise due to smaller revenue collections, more spending on government assistance programs, and sometimes government intervention through debt-financed “stimulus.”  The measurement above shows the change in the debt-to-GDP ratio from before the recession to two years out following its end.  This allows the economy to recover, revenues to rebound, the demand for public assistance to shrink, and any special stimulus programs to end, thus giving a more accurate picture of the overall debt situation in the aftermath. 

 

Across several past recessions, recoveries posted relatively small net increases in the debt-to-GDP ratio.  However, the Obama recovery saw a large and sustained increase in the share of the economy consumed by debt.  CBO projects it is now on an alarming trajectory to reach 141% of GDP in 30 years.  This makes a fiscal crisis likely and removes the flexibility of the government to deal with future recessions.