Listening to the discussion on the USA debt ceiling, most political pundits would like to have you believe that cutting spending is all that is necessary is to balance the budget. Really simple.
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.
Bankruptcies this Week: Bridgetech Holdings International and Omega Navigation Enterprises.
Click here for interactive version of the following table with active hyperlinks.