economy still improving
 

Greenspan: Solid growth, more hikes
Fed chairman tells House panel 'significant uncertainties' could alter positive economic outlook.
July 20, 2005: 10:36 AM EDT

WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan, in probably his last semi-annual testimony to Congress, said Wednesday that the U.S. growth outlook was solid and the Fed should keep raising interest rates.

But he warned "significant uncertainties" surround this positive prospect, including the high price of energy, labor costs, the future behavior of low long-term interest rates and the danger this could spell for the country's housing market.

"Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures," he told the House Banking Committee in the text of his remarks, made available to the media before delivery.

"In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation. This generally favorable outlook, however, is attended by some significant uncertainties that warrant careful scrutiny," said Greenspan, who is due to stand down at the end of January.

Turning to long-term yields that have stayed low in the face of rising official interest rates, Greenspan said their decline was "without precedent" and warned their future behavior was a risk to the outlook.

Part of the danger lies in the fact that low borrowing U.S. costs have contributed to a boom in U.S. house prices, with Greenspan citing "speculative fervor" in some markets.

The Fed has raised interest rates in nine quarter-percentage point steps since June last year to 3.25 percent and is expected by financial markets to keep going to around 4.0 percent by the end of 2005.

In his testimony, Greenspan cited the last Fed policy committee statement, which said the Fed expects to raise rates at a "measured" pace.

The 79-year old chairman, due to retire in January, said it was not clear if U.S. unit labor costs would keep on a modest upward path and warned this could have an important impact on inflation.

A spike in oil prices above $60 per barrel along with other energy price rises posed another important risk.

A flattening in prices would be good for inflation, but Greenspan noted that financial futures markets see little chance of a decline in energy costs "for years to come."

Find this article at:
http://money.cnn.com/2005/07/20/news...ex.htm?cnn=yes

AND ---

Revenue Surge Shrinks Deficit
Tax Cuts 'Working,' President Says, but Some Voice Caution

By Jonathan Weisman
Washington Post Staff Writer
Thursday, July 14, 2005; A01



The federal budget deficit will slip to $333 billion this fiscal year, from $412 billion in 2004, as a surge of unanticipated tax receipts pushes the red ink significantly below levels projected just five months ago, White House officials said yesterday.

The midyear budget forecast also shows that President Bush is on track to reach his goal of halving the deficit a year before his deadline of 2009. By 2008, the White House forecasts that the deficit will fall to $162 billion, or 1.1 percent of the gross domestic product (GDP). A slight rise projected for 2010 reflects the initial cost of Bush's proposal to add private investment accounts to Social Security.

"It's a sign that our economy is strong, and it's a sign that our tax relief plan, our pro-growth policies, are working," Bush said after a Cabinet meeting at the White House.

In dollar terms, the 2005 deficit of $333 billion would still be the third highest on record. That figure relies on the expenditure of about $173 billion in surplus Social Security taxes that must be repaid when baby boomers enter their retirement years. Sen. Jim DeMint (R-S.C.) called the deficit numbers "misleading" because "Congress is raiding Social Security to mask the true size of the deficit," which he says should be more than $400 billion.

But the change from February's projections is dramatic. Then, the White House foresaw a record deficit of $427 billion, equal to 3.5 percent of the GDP, for the fiscal year ending Sept. 30. Under that forecast, the deficit would have risen for the fourth straight year, from the $128 billion surplus Bush inherited in 2001. Now, the deficit is expected to finally begin receding, and it would come in at 2.7 percent of the GDP, smaller in those terms than the deficits of 15 of the past 25 years.

"The U.S. budget deficit is falling, and it's falling fast," said White House budget Director Joshua B. Bolten.

Independent budget experts cautioned that a number of debatable assumptions underpin the White House's deficit projections. The improved budget picture for 2005 is almost all the result of $87 billion in unanticipated tax receipts, much of which may have resulted from one-time events, such as a one-year corporate tax holiday enacted last year.

Congressional Budget Office Director Douglas Holtz-Eakin said last week that such events probably will not make much difference for the budget picture by the end of the decade. But the White House assumes that tax receipts will come in an average of $82 billion higher in each of the next five years than the administration forecast in February. A White House budget official called the assumption "eminently reasonable," because tax receipts rarely decline even from elevated levels in an expanding economy.

The White House does include $37 billion in Iraq and Afghanistan war costs for 2006 and $13 billion in 2007, but Bolten said those costs will certainly be higher. The projection does not include additional expenditures to fix the alternative minimum tax (AMT), a parallel income tax enacted to ensure the rich pay taxes but one that increasingly ensnares the middle class. Bolten acknowledged the AMT needs to be fixed but said it should be part of an overall tax revision effort that does not change total tax revenue.

The White House also assumed that interest rates over the next five years will be considerably lower than those projected by the private sector. Lower interest rates would shrink payments due on the expanding federal debt. Such payments have already risen 14.5 percent over the level at this time last year, as the Federal Reserve Board raises rates, according to the CBO. And Anthony M. Santomero, president of the Federal Reserve Bank of Philadelphia, warned yesterday that rates are likely to continue their rise.

Moreover, Bolten said, the real strains on the federal budget deficit will be seen beyond the administration's five-year window, when retiring baby boomers begin driving Medicare and Social Security expenditures dramatically higher.

"Don't be deceived," warned U.S. Comptroller General David M. Walker. "We face large and growing structural deficits in the long term that are getting worse every day, and it's time that we start to address them."

Republicans boasted that the improved outlook vindicated their drive to cut taxes in each of the last four years, claiming that much of the boost in tax revenue was the result of economic growth stimulated by the tax cuts. The White House used the news to resume its push to make permanent tax reductions set to expire at the end of 2010.

"There's no doubt that the effect of the tax cuts . . . have been an enormous factor in producing the additional income that has found its way now into the federal treasury," Bolten said.

Rep. John M. Spratt Jr. (S.C.) and Sen. Kent Conrad (N.D.), the ranking Democrats on the House and Senate Budget committees, agreed that the short-term numbers are a marked improvement. But Senate Minority Leader Harry M. Reid (D-Nev.) said the administration was "claiming credit for an F-plus in fiscal management."

© 2005 The Washington Post Company http://www.washingtonpost.com/wp-dyn...071301617.html

Economic news is mostly bogus. The politicos & their plebs have the public convinced that it's all important stuff & useful to them. Hewlett-Packard is laying off thousands of workers, so "solid growth" means nothing to them -- or to the region in which they'll be laid off.

Economic news is what is always is: some people get jobs, some people don't; some people get cost-of-living raises, some people don't; some people can afford their mortgages, some people can't; some people make money in the stock market, some people don't.

But EVERYONE is paying a ****load for gasoline at this point.

True - but these figures are not meant to represent a single company or sector. They represent the economy as a whole, which thankfully is improving.

It's not improving around here, at least not yet. My mortgage company is very hopeful that it turns around soon....

Yeah but that's my point. The "economy as a whole" is just an abstract gauge, a series of numbers & computations for economists to dabble with. The government & the press have the general public believing that a series of positive or climbing numbers means good things to individuals, & it just doesn't follow. It's an example of the fallacy of post hoc ergo propter hoc -- the fallacy of confusing consequence with sequence.

If so-and-so gets a good job this year, it's not necessarily a result of an "improving economy" -- which is all macro bull****. It's more than likely a result of micro situations, not to mention luck.

But politicians pitch these macro numbers around (& every day in every paper brings another "report" -- sometimes totally contradicting the report of the previous day) in order to scoop votes & popularity; & the media do the same thing in order to give their readers the idea that they're better off today than they were yesterday, so that those readers will buy the big-ticket products of the advertisers, who keep the newspapers afloat. (Newspapers live off large advertising revenue, not classified ads & certainly not "news.")

While I agree, there must be a general guage to determine things. I also agree with you that luck is a big part of it. Interestingly, Bush's "luck" was 9/11 which allowed him subsequently to be fiscally irresponsible and borrow trillions to help set up the economy, though I think the tax cuts did initially help. In the end, I think economies are cyclical and are never really more than that despite the prodding.

And yet, pretty much everyone I know cannot believe the property tax bill they have received in the last couple of years. I'm talking about people who I have talked to state wide.
So yes, I guess W can say tax cuts are "working" but for whom?

Kodak just laid off another 10,000 as well.

Well, that's been coming for 5 years. It was INEVITABLE with digital photography. Technology that has become obsolete, at least on the scale it was.

You'd think a camera company would see it coming and do something about it. Bad management.

Property taxes are out of control here. Mine went up $800 this year. Yet I have no kids going to schools, riding buses, etc. I think there should be a credit for those without kids. We're helping with overpopulation, the environment, etc, yet we have to pay for the people who multiply like bunnies. And the people who multiply like bunnies, are often, the ones who pay little or no property taxes. JMO.

Well, other than going into digital camera manufacturing, what are they going to do? And, I'm assuming most digital cameras are built overseas anyway. Processing old style film was an american job, since the product was already here.

Diversify their business. :shrug:

I read that too.....all I can say is, CA is still laboring under a statewide deficit, so for me to read articles that say the economy is improving is a bit unreal.
I have a feeling that the "economy" that those articles are referring to is the big business sector, NOT the reality for Joe Everyman.

Im sure the Administration is gratified to be able to crow that the Federal deficit is now only a paltry $333 Billion instead of $412 Billion previously. ($333 Billion deficit is STILL the 3rd highest in History!) And then there's this: Considering that we didnt have a deficit at ALL when the Shrub took office, Im sure you'll understand if I dont clap :mad:

btw: CA has the WORLD's 5th largest economy so to discount "a single sector" is unrealistic--all of these sectors make up the whole.....so, I have to ask: with so many States having difficulty (not just CA), I wonder just exactly WHICH segment of the economy is actually improving? Trickle down sure isnt working where I live.......