Washington Had a Spending Problem
But does it have one now and through 2017? In an historical context, no. Consider Chart 1, which shows the rate of growth in the 12-month cumulative amount of total federal outlays from year-ago month. In the 12 months ended June 2011, total federal outlays are up 3.28% from 12 months ended June 2010 -well below the 6.64% median growth in this 12-month cumulative total from December 1955 through June 2011. So, Washington hardly has a spending problem now vs. history.
Chart 1
Although Washington does not seem to have a current spending problem, what about a spending problem going forward? Specifically, if the programs specified in President Obama's February 2011 budget proposal were implemented, how would growth in federal total outlays in an eight-year Obama presidential tenure compare with growth in federal total outlays of other presidents' tenures? To answer this question, I have relied on projections of total federal outlays by the Congressional Budget Office (CBO), the nonpartisan "scorekeeper" of all things fiscal. Chart 2 shows the compound annual rates of growth in total federal expenditures of presidential tenures beginning with the Kennedy-Johnson eight-year tenure. Because an incoming president essentially inherits the budget of his predecessor, I have started the growth clock in the second year of a presidency and kept it running through the first year of the next president. For example, the clock for federal outlays for President George Walker Bush started with fiscal year 2002 and ran through fiscal year 2009. Although I am not making any predictions about the outcome of the 2012 presidential election, because the CBO has projected federal outlays through what would be another full term for President Obama (and beyond) and because of claims that under President Obama's budget proposal federal spending is a "problem," I have assumed in the growth calculations another full term for President Obama. So, Obama's federal-spending clock starts with fiscal year 2010 and runs through fiscal year 2017. In the presidential terms starting with Kennedy-Johnson, growth in federal total outlays was the fastest under President Carter (JEC) with a four-year compound annual rate of growth of 13.46%. The slowest growth in federal total outlays occurred during President Clinton's (WJC) term with an eight-year compound annual rate of growth of 3.55%. Given actual fiscal year 2010 outlays and CBO projections through 2017 based on President Obama's budget proposal of February 2011, the compound annual rate of growth in federal total outlays in the eight years ended 2017 would be 3.65%, just 10 basis points above that of President Clinton's eight-year presidential tenure.
Chart 2
Lest you think that I rigged the data in favor of President Obama by assigning the total federal outlays in fiscal year 2009 to President George Herbert Walker Bush, the fact is that there were some very large federal outlays, such as those related to TARP in October 2008, that occurred prior to President Obama's inauguration in late January 2009 (see Chart 3). Bear in mind the federal government's fiscal year begins in October and ends the following September.
Chart 3
In part because of the nine consecutive federal budget deficits run starting in fiscal year 2002, cumulating to $4.84 trillion, interest on the federal debt is projected to be the fastest growing major component of federal outlays. Chart 4 shows the compound annual rate of growth of federal outlays excluding interest on the debt by presidential tenure. In the eight years ended fiscal year 2017, federal outlays excluding interest on the debt is projected to grow at a compound annual rate of 2.43%, the slowest, by far, during any presidential tenure starting with the Kennedy-Johnson presidency.
Chart 4
Although when considering CBO and anyone else's projections of federal outlays for the next several decades beyond fiscal 2017, it is correct in saying that Washington does have a spending problem, largely because of baby-boomer entitlement expenditures and interest on the debt. But looking at growth in current federal outlays and projections out through fiscal year 2017, it seems to be hyperbolic to say that Washington currently or in the next six fiscal years has a spending problem.
I appreciate the notion that presidents do not have complete control of the amount of expenditures that occur during their tenures. Although presidents submit budget proposals, Congress authorizes expenditures. So, it might be inappropriate to demarcate growth rates in federal outlays by presidential tenure. The fact (or CBO projection) remains, however, the current growth rate and projected growth rate through fiscal year 2017 in federal outlays are restrained in an historical context.
Households See Marginal Deterioration in July Job Prospects
Although the Conference Board's household survey did show an uptick of 1.9 points in overall consumer confidence in July powered by the expectations component (see Chart 5), the more important part of the survey related to labor market conditions continued to paint a dismal picture. The difference between the percentage of respondents saying that jobs were hard to get vs. the percentage saying that jobs were plentiful increased by 0.9 points in July - the third consecutive monthly increase. As shown in Chart 6, this difference tends to move in tandem with the monthly BLS unemployment rate. Although hardly the final word on the July unemployment rate, the July Conference Board household survey is not encouraging that the BLS will report a decline in the July unemployment rate.
Chart 5
Chart 6
Two Reports Show Housing Continuing to Languish
New home sales were reported to have declined by 0.95% in June, slipping to an annualized sales rate of 312 thousand units (see Chart 7). The number of new homes that were being offered for sale fell to 164,000 units (see also Chart 7), the lowest number since the inception of this series way back in January 1963! Despite the incredibly small number of new homes for sale, it took almost 10 months to "move the merchandise" in June (see Chart 8). The July home-builders survey indicated that sales activity was picking up (see Chart 9), so perhaps the July report on new home sales will reflect this.
Chart 7
Chart 8
Chart 9
The continued weakness in housing demand is reflected in the behavior of the Case-Shiller price index for home sales (including the prices of sales of existing homes) in 20 major metropolitan areas. After rising 0.44% in on a seasonally-adjusted basis, this price index retreated marginally by 0.05% in May (see Chart 10). The continued weak sales rates for houses, both new and existing, suggest that the April increase in the Case-Shiller price index was an anomaly.
Chart 10
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Author: Paul Kasriel
Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.
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