Moneybeat - Record high tax collection, but trillion dollar deficits

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Make it two winning weeks in a row for Wall Street, with gains ranging from one to 2.2 percentage points. The Standard & Poor’s 500 and the Nasdaq set new record highs each day except Thursday. The Dow Jones Industrials hit its new high-water mark on Wednesday. Two of the major indexes now sit about three percentage points shy of hitting major milestones: The Dow is nearing the 30,000 mark and the Nasdaq is even closer to the 10,000 mark. It was three years ago, the Dow had just crossed 20,000 and the Nasdaq was below 6,000. The markets are closed today for the President’s Day holiday.

REICHARD: Retail sales in January were in line with economists’ expectations, rising three-tenths of a percent. Year-on-year, retail sales are up 4.3 percent and that figure is an important one because retail makes up about a quarter of Gross Domestic Product.

EICHER: Meantime, the prices consumers pay ticked up one-tenth of a percent in January. But the year-on-year rise is now the highest since October 2018, 2.5 percent. This consumer-inflation gauge has been above 2 percent year-on-year now for three months in a row. That’s about the level the Federal Reserve is comfortable with. If it starts trending higher, that will get the Fed’s attention and you may start hearing talk of higher interest rates to combat it.

REICHARD: Manufacturing in this country may be up or it may be down, depending upon how you count it. If you back out the volatile aircraft sector, American manufacturing grew slightly in January. But Boeing’s ongoing troubles with the grounded 737 Max helped to drive overall factory output down one-tenth of a percent. A warmer winter so far has meant 4 percent less demand for utilities, and so overall industrial production declined three-tenths. 

The private Institute for Supply Management, though, sees a bright spot: its purchasing-managers index is up over 50 for the first time since last July, and that’s a sign of manufacturing growth.

EICHER: We are on track for our first trillion-dollar deficit since 2012. The Treasury Department reported last week that for the first four months of the federal fiscal year, the deficit is nearly 20 percent higher than last year. Overall, government spending outpaced revenue 10.3 percent to 6.1 percent.

Wire-service reports placed part of the blame on the 2018 tax reduction, but that’s misleading. The government has raked in $1.2 trillion for the fiscal year-to-date, and it’s never collected that much in the first four months. Federal spending, though, has also set a record-high $1.6 trillion. Medicare, Social Security, and interest payments on the national debt make up nearly half of all federal spending so far this year.

Historically speaking, this is a large deficit, about 4-1/2 percent of gross domestic product. The average deficit since World War II has been a little over 2 percent of GDP. The worst period followed the great recession of 2008: for three years, the deficit as a fraction of GDP exceeded 8 percent. 

What’s worrying about this 4 percent deficit is it comes during the longest-ever period of economic expansion.

And that is today’s Monday Moneybeat.

(AP Photo/Carolyn Kaster, File) This July 16, 2019, file photo shows the Capitol Dome in Washington.

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