The surprise levels in Tuesday's reports on the twin deficits add to the cumulative plunge in retail sales to make them all worthy of comment.
I'll start with today's report on retail sales which came in well below market expectations to leave nearly a -10% decline from a year ago. Retail sales include the goods purchases as the addition of service spending provides the fuller read of personal consumption spending released in early February.
After falling for six consecutive months, retail sales are down an astounding -20% over the last half year (annualized). The biggest drags have been autos (-22% from a year ago) and gas station sales (-36%) as only the food and health care components show annual gains. The resulting recession fosters the downward economic cycle as higher unemployment and smaller income gains (and equity declines, home price declines, etc) leave reduced consumer spending.
The November trade deficit plunged over $16 bln (almost 30%) to $40.4 bln -- the lowest in five years. The smaller deficit is very welcome news for fourth quarter growth and should slice about 1.5% from what forecasters were estimating at about a -6% economic contraction in Q4.
Imports plunged a massive 12% from declines in energy, capital and consumer goods as exports fell almost 6%. The dive in petrol prices has helped to lightened that significant import component by more than a half since July. After being stuck in a narrow -$56 bln to -$63 bln range for the year prior to November the smaller deficit reflects the effects from the weaker global economy as well as the energy effects.
The inclusion of the Federal Budget deficit comes as many are just now awakening to the massive borrowing effects from fiscal stimulus. The Spring 2008 tax rebates and the TARP investments early in the first fiscal quarter add the significant drag from the recession -- reduced tax receipts and increased government spending.
The $84 bln deficit in December contrasted to a $48 bln surplus a year ago to leave a $132 bln one-month drag and leaves the first fiscal quarter with a deficit $378 bln larger than a year ago. Over the last 12 months the deficit has summed to $833 bln as the bi-partisan Congressional Budget Office estimates the FY09 deficit at $1.2 trillion (8.3% of GDP) -- and that's without Obama's massive stimulative package expected soon after he steps in to office.
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