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Wednesday, January 14, 2009

US Figures

Retail sales for December are out. This report is notable in several respects (although it is advance, and it will be revised next month). The first is that retail sales for all of 2008 are slightly under retail sales for all of 2007, having dropped 0.1%. The second is that December 08 retail sales dropped 9.8% compared to December 07 retail sales.

Other eye-catching stuff: Comparing Dec 07 to Dec 08 (adjusted for trading day differences) the only categories of retail spending which increased were groceries & beverages (up 1.3%) and health & personal care (includes medicines), which was up 5.2%.

Groceries alone only increased 1.1%. That is a striking number, because food costs over the year increased far more than that, and in theory the US population increased. I don't think it did, but if you take this at face value using census extrapolations, real grocery spending declined about 7% per capita, which would indicate a truly immense economic problem.

Final rail figures for 2008 were published. For all of 2008 compared to 2007, carloads dropped 2.2%, and intermodal dropped 4.2%. Total volume rolled back to 2004 (coming in lower than 05, 06 and 07). For all of December, carloads were down 14.2%, and intermodal was down 13.7%. Intermodal dropped earlier, so that is why it looks relatively better.

Trade balance November: -40.4 billion, having dropped from a revised -56.7 billion in October, almost 29%. Exports dropped 5.7% on the month; imports dropped 12%. Over the year, November exports dropped 1.7%, and imports dropped 10.6%. The unit price of petroleum imports dropped over the year from 79.87 to 66.72 (16.5%), so that accounts for a lot of the change. (see exhibit 17). Foreign trade main page.

For the week ending January 9th, crude inventories were up 13.1% compared to the same week in the prior year, and supply of all product was up 5.6% excluding SPR. Distallate supplies were up 8.6% compared to a year ago. US diesel prices have dropped about 50% from their height last year.

Monthly Treasury Statements can be found here. If you look at Table 3, you see that personal income taxes have fallen 6.7%, corporate income taxes have fallen 45.5%, and unemployment taxes have fallen 7.6% in the first quarter of the 08-09 fiscal year (Oct, Nov, Dec). Total receipts fell 9.7%. (See Table 3 for this information; the figures given are in millions.)

Total receipts (in millions) for the first quarter of the FY were 547,439. Total outlays were 1,032,638, for a net deficit of 485,198. There is a rounding difference of 1 million here. Because of the way taxes are paid, deficits aren't evenly spread by month and quarter through the year. Nonetheless, the fact that the deficit for the equivalent period in FY 07-08 was 106,816 ought to give us all pause.

You might want to know how your money is being spent. Expressed as a percent of total outlays for the first quarter, here they are ranked from top to bottom as a percent of total outlays:

Click on this to get a larger image.

Now there are a few points I'd like to make. First, we cannot keep spending money on "stimulus" at this rate. Eventually it won't be a stimulus, but a drag.

Even even though we got a temporary bonus in the form of lower treasury rates, that isn't going to last forever, and then we are going to get a double whammy on our interest outlays a few years down the line. As it is, if you chop out the stimulus, about half ur outlays went to social spending. Then we are spending another 17.5% on interest on our debt. Together, that totals 2/3rds of spending. Even if you cut one quarter of military spending (and Obama's plans for Afghanistan make that quite unlikely), you haven't improved the overall picture very much.

The top items in the full year budget estimate are:
Health & Human Services - 739,241
Social Security Admin. - 699,976
DoD Military spending - 656,722
Int on Treasury Debt - 449,070
Total of these four is - 2,545,009
That's 2.5 trillion dollars out of the 3.1 trillion total budget.

The annual cost of borrowing another trillion dollars if interest rates average (1 trillion = 1,000,000,000,000)
3%: $30,000,000,000 (30 billion)
4%: $40,000,000,000 (40 billion)
5%: $50,000,000,000 (50 billion)

There is a Treasury Direct site which allows you to see our ballooning debt held by the public (the number which really matters). As of 1/9/09 it was
6,290,327,140,825.48, or 6.3 trillion. If we add another 1.2 trillion this year, it will be 7.5 trillion next year. Another feature of the current situation is that Social Security payments are rising more rapidly than expected, and with income dropping, receipts are less than expected. If you look at the 2008 Trustees report (which covers 2007 operations) and look at the projections there, correlated with the trends above, it appears that shortly the SS surplus will be gone, and the general fund will begin having to actually pay interest to social security to cover benefits. From the first quarter of 08, compared to the first quarter of 09, Social Security outlays increased 7,651 million, whereas receipts increased only 2,263 million, so the quarterly surplus dropped 5.38 billion.

We are near the point at which we are going to have to cut non-entitlement social spending sharply, so we might as well get that into our heads. You can only raise taxes so far; after that, you encounter diminishing returns. We still have room to raise income taxes somewhat (5-10% on upper brackets). We will do that very shortly.

After that, it's game over for the spending party, because you can't raise US marginal corporate taxation much further. You could eliminate some of the tax breaks and cut the marginal rates of corporate taxation. If you went low enough - 20-25% top bracket - you'd get more insourcing of business and higher corporate tax receipts over time. Remember, we are competing with flat rate corporate taxation in places like Ireland and some of the eastern European countries. However it takes years to get the benefit of that, so if that is the strategy we are going to follow it's one that must be implemented within a few years.

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