National Debt to Double Over Next 30 Years
March 31, 2017
The Congressional Budget Office reported on Thursday that the national debt is on track to double over the next three decades; Personal incomes increased by 0.4% in February as personal consumption expenditures rose by 0.1%; Consumer sentiment is holding at its healthiest level in more than a decade; Chinese factory activity levels hit a five-year high in March, according to the country’s National Bureau of Statistics.
- The Congressional Budget Office reported on Thursday that the national debt is on track to double over the next three decades, highlighting a challenge for the reflationary proposals of the Trump administration that could drive the federal deficit even higher. The CBO’s annual report anticipates the federal debt, which has doubled since 2008 to reach 77% of GDP, moving to 150% of GDP by 2047, up from the office’s January estimate of 145%. The upward revision reflects higher costs for health-care programs and Social Security, the result of an aging population, and higher interest rate payments on government debt. The CBO also lowered its expectation for GDP growth over the next 30 years due to slower productivity growth. The report’s estimates are based on current laws remaining largely unchanged, such that long-run GDP expansion would total an annual 1.9%, meaningfully below the 50-year moving average of 2.9%. The 10-year U.S. Treasury rate is forecast to be 1.9%, below its 2015 level of 2.2%. Net interest costs on servicing federal debt will increase from 7% of GDP today to 21% by 2047. [WSJ]
Economic Indicators & News
- Personal incomes increased by 0.4% in February as personal consumption expenditures rose by 0.1%, while the Personal Consumption Expenditures price index, the Fed’s favored measure of inflation, increased by 0.1%, consistent with market expectations. The monthly gain was the stronger reflection of inflationary pressure since March 2012, signaling the abatement of long-standing surplus capacity and labor market challenges. Excluding food and energy, the PCE price index was up 0.2% – 1.8% on the year – and the headline metric is 2.1% higher than its February 2016 level. The increase in income primarily reflects a rise in wages and rental income, though real personal consumption expenditures in 2009 dollars fell because spending for services declines, which was offset by higher spending for nondurable goods. Personal saving totaled $808.0 billion during the month to yield a personal savings rate of 5.6%. Firmer inflation could give Fed policy makers greater ammunition for future interest rate hikes. [BEA]
- The final reading of March consumer sentiment fell to 96.9 from its preliminary reading of 97.6. as the current conditions index, though at its highest level since July 2005, declined 1.3 points from its advance level of 114.5. Sentiment is holding at its healthiest level in more than a decade as Americans, especially middle- and upper-income earners, continue to monitor a stock market rally that could moderate household wealth. The expectations component moved lower by a slight 0.2 points to 86.5, while the final five-year outlook index reading declined 9 points to 103. Consumers anticipate inflation of 2.5% over the next year, down from 2.7% in February, while the long-term pace of price growth is forecast to be 2.4%, a decrease of 0.1%. The data also reflects a partisan divide in expectations, as twice as many Republicans anticipate their finances improving versus Democrats. [UMich]
- Chinese factory activity levels hit a five-year high in March, according to the country’s National Bureau of Statistics, as the purchasing manager’s index edged up 0.2 points to 51.8, demonstrating the effectivity of government stimulus spending and rising prices. The government’s nonmanufacturing PMI rose to a three-year high of 55.1 last month. Subindexes for new orders, exports, and production all rose, while the gauge for raw inventory levels edged down, which is indicative of increased demand for material inputs. The statistics bureau reported that high-tech manufacturing continued to expand as traditional manufacturers began to show turnaround, though many heavy industry companies still face problems obtaining affordable financing. The uptick in manufacturing sector growth counters China’s efforts to shed industrial overcapacity, however, underscoring the difficulty of managing a state-planned economy. [WSJ]