ISM manufacturing survey up above expectations at 48.9. This is still below the key 50 mark but the level is back to pre-Lehman levels and is consistent with the similar surveys in other parts of the globe. The worst of the current downturn may be over when we get these kinds of number. However, that is different from saying that we will have high growth.
More important than the economic announcements are the Treasury projections for borrowing in the coming quarters. The Treasury only borrowed $343 billion instead of the projected $361 billion in the second quarter. This was 5% under projection. For the third quarter, the Treasury now expects to borrow $406 instead of the $515 billion estimated earlier. This will be just over 20% less. It will also look like the fourth quarter will also see less borrowing. This is good news before the announcement of the quarterly refunding. Some government bail-out programs are using less money than expected.
The bad news is that tax revenues have been falling at a rapid pace. This decline is much greater than the decline in the overall economy. Individual income tax receipts are down over 20% while corporate taxes are down over 50%. Loss carry forwards reduce revenues. Less income reduces revenues. All of the tax breaks for each class and firm start to add up when you are in a downturn. If this continues, there will have to be new methods for raising revenue. The stabilizers in fiscal policy are supposed to help the economy but at the extreme they can have a negative impact on the government. deficit. What is spent today will have to be financed and paid back in the future. Economic growth is smoothed. The issue is still the multiplier effect which needs to be better than one to have a strong impact. The research on the size of multipliers is mixed.
More important than the economic announcements are the Treasury projections for borrowing in the coming quarters. The Treasury only borrowed $343 billion instead of the projected $361 billion in the second quarter. This was 5% under projection. For the third quarter, the Treasury now expects to borrow $406 instead of the $515 billion estimated earlier. This will be just over 20% less. It will also look like the fourth quarter will also see less borrowing. This is good news before the announcement of the quarterly refunding. Some government bail-out programs are using less money than expected.
The bad news is that tax revenues have been falling at a rapid pace. This decline is much greater than the decline in the overall economy. Individual income tax receipts are down over 20% while corporate taxes are down over 50%. Loss carry forwards reduce revenues. Less income reduces revenues. All of the tax breaks for each class and firm start to add up when you are in a downturn. If this continues, there will have to be new methods for raising revenue. The stabilizers in fiscal policy are supposed to help the economy but at the extreme they can have a negative impact on the government. deficit. What is spent today will have to be financed and paid back in the future. Economic growth is smoothed. The issue is still the multiplier effect which needs to be better than one to have a strong impact. The research on the size of multipliers is mixed.
No comments:
Post a Comment