Newsletter: $1 Trillion Deficits Are Here to Stay – Real Time Economics


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If I Had a Trillion Dollars, I’d Be Rich
The national debt and sustained federal budget deficits will hit the highest levels since World War II over the next decade. The Congressional Budget Office projected the government will spend $1 trillion more than it collects in 2020 and deficits will reach or exceed that threshold every year for the foreseeable future. As a share of gross domestic product, the deficit will be at least 4.3% every year through 2030. That would be the longest stretch of budget deficits exceeding 4% of GDP over the past century. Debt held by the public is projected to be 81% of GDP this year and to reach 98% by 2030, Richard Rubin reports.
The culprits: Multiple rounds of tax cuts and continued increases in federal spending.
How much is a trillion? For comparison, 1 billion seconds is a little less than 32 years. A trillion seconds is just under 31,710 years.

The U.S. trade balance in goods for December is out at 8:30 a.m. ET.
U.S. pending-home sales for December are expected to rise 1% from the prior month. (10 a.m. ET)
President Trump participates in a signing ceremony for the United States-Mexico-Canada Trade Agreement at 11 a.m. ET.
The Federal Reserve releases a policy statement at 2 p.m. ET and Fed Chairman Jerome Powell holds a press conference at 2:30 p.m. ET. Officials are likely to hold interest rates steady and maintain their wait-and-see policy stance. Here’s what to watch.
Tax Cuts Giveth, Tariffs Taketh Away
President Trump’s tax cuts and the strong economy have been boosting household disposable income, but one of his other policies has been pushing in the opposite direction. The president’s tariffs and trade barriers are reducing average real household income by $1,277 this year, according to the Congressional Budget Office. And the tariffs are reducing the level of real GDP by 0.5 percent and raising consumer prices by 0.4 percent. Those effects are now fading, according to CBO. —Richard Rubin

Missing Ingredient
A closely watched measure of business investment fell in December, the latest sign of softness in manufacturing. New orders for nondefense capital goods excluding aircraft dropped 0.9% in December from the previous month, the Commerce Department said. So-called core capital goods orders—which set aside volatile defense and transportation—are widely viewed as a measure of businesses’ willingness to spend on items such as machinery, equipment and computers, Amara Omeokwe reports.
Case study: 3M posted lower revenue in significant U.S. markets and set plans for fresh layoffs, the latest manufacturer to exhibit signs of strain. 3M’s results highlighted a divergence between consumer-driven and industrial segments of the U.S. economy: Units that largely serve industry posted revenue declines, while sales in units serving consumers and the health-care industry were flat, Austen Hufford reports.
One big seller: medical face masks. 3M has boosted production to meet a surge in demand because of the coronavirus outbreak in China.

Heard on the Street’s Justin Lahart says one-off issues—from Boeing’s woes to a General Motors strike to soft overseas growth—keep getting the blame for weak capital spending. But if companies were given an overwhelming reason to start spending more, they probably would. Instead, they have been presented with a U.S. economy that, while steady, has been only growing at about a 2% annual rate. Moreover, rising labor costs have been pressuring profit margins. The result: Companies’ default position is to play it safe.

At the Corner of Supply and Demand
Home-price growth accelerated in November, in the latest sign the home-sales market is picking up steam after a slow start to 2019. While that may be good news for sellers, rising prices could offset some of the decreased costs home buyers are seeing with low mortgage-interest rates. Most economists say an inadequate supply of homes available for sale is driving prices higher, Will Parker reports.

What’s Wrong With Being Confident
U.S. consumers are feeling broadly good about the economy. The Conference Board’s measure of consumer confidence in January ticked up to its highest level since August, driven largely by a positive assessment of the job market and optimism about future job prospects. One notable feature: Confidence among the lowest-income households rose to the highest level since 2000. That may reflect strong hiring and solid wage gains at the bottom of the earnings ladder. Even so, there is a wide gap in perceptions about the economy between households earning the least and those earning the most.

Coronavirus Fallout
British Airways said it had canceled all flights to mainland China, the first global airline to do so, as a dangerous new coronavirus roiled Asia and spread steadily beyond. British Airways said flights to Hong Kong will continue.
The outbreak could have an outsize impact on the global auto industry. The Chinese auto industry has grown from virtually nothing 30 years ago to become the world’s largest market for new vehicles. Wuhan, Hubei’s capital and the believed source of the outbreak, has in that period emerged as an auto-making hub, home to state-owned Chinese car manufacturer Dongfeng Motor and numerous assembly plants building cars for Honda, PSA Group and General Motors, William Boston, Mike Colias and Chieko Tsuneoka report.
Starbucks said it was temporarily closing more than half of its stores in China because of the coronavirus outbreak. The Seattle-based company said the closures in its second-largest market would have an effect on the fiscal second-quarter and full-year financial results.
China on Monday stopped allowing tour groups to leave the country. That’s going to ripple through the global economy: Chinese visitors are now the most lucrative group for many countries. Nearly 168 million residents of China went outside the country in 2018, according to the U.N. World Tourism Organization, and spent some $277 billion.

Minimum wage increases are healthy. “We find evidence that an increase in the minimum wage throughout childhood is associated with a large improvement in child health. A particularly interesting finding is that much of the benefits of a higher minimum wage are associated with the period between birth and aged 5,” George Wehby, Robert Kaestner, Wei Lyu and Dhaval Dave write in a National Bureau of Economic Research working paper.
Real Time Economics has launched a downloadable calendar with concise previews, forecasts and analysis of major U.S. data releases. To add to your calendar, please click here.


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