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St. Louis Fed Analyzes the Growing U.S. Debt and Deficit
ST. LOUIS (PRNewswire), January 11, 2009 - Fundamental reform of entitlement programs is critical for putting U.S. fiscal policy on a long-run, sustainable path.

That's one point emphasized by economist Michael Pakko in the January issue of The Regional Economist, the quarterly journal of business and economic issues published by the Federal Reserve Bank of St. Louis.

In the fiscal year 2008, the federal government's deficit totaled $455 billion -- the largest ever for a single year -- and the federal debt rose above $10 trillion for the first time. But because the Social Security trust funds are currently running large surpluses, their inclusion in the unified budget had the effect of lowering the reported deficit. When these off-budget items are removed, the deficit was closer to $638 billion.

As long as the balances in the Social Security trust funds are increasing, the deficit will be partially offset. But what happens when Social Security benefit payments begin exceeding revenues?

"When this happens, the off-budget surpluses will cease to partially offset the on-budget deficit, causing it to contribute to the overall deficit," said Pakko. "The retirement of the Baby Boom generation and a slowing rate of growth in the labor force will create a demographic time bomb in which entitlement growth threatens to swamp available resources."

Current estimates project that the Social Security trust funds will begin running down in 2017, with full depletion by 2041. The U.S. Treasury estimates that paying promised benefits through the year 2081 would require $6.8 trillion for Social Security alone, that number increases to $40.9 trillion when unfunded obligations from Medicare parts A, B and D are included.

Assuming revenues hold constant at the historical average of 18 percent, the Government Accountability Office projects that the deficit will rise to over 40 percent of GDP and the federal debt will increase to over 600 percent by 2080.

"So while the size of the debt and deficit per se are not necessarily as important as the underlying policies of spending and taxation, when they are part of a fundamental structural imbalance in the long term, they signal a need for serious attention and reform," Pakko concluded.

Deloitte Consumer Spending Index Improves in December
ST. LOUIS (PRNewswire), January 11, 2009 - The Deloitte Research Leading Index of Consumer Spending improved in December, primarily due to a sharp decline in energy prices that in turn is giving a boost to real wages. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"Falling energy and food prices are giving a boost to consumer purchasing power, and are offsetting some of the decline in house prices," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. "In addition, if the new administration's stimulus plan includes a tax reduction, as expected, that would improve our outlook for consumer cash flow and spending. At the same time, the deterioration in the labor market continues to be a key concern, and clearly there are still many economic issues that need to be addressed."

The Index, comprising four components -- tax burden, initial unemployment claims, real wages and real home prices -- posted a 0.3 percent gain, up from a revised decline of -0.05 percent in November.

"Consumers are a bit better positioned now that the threats from inflation are receding, although sentiment about the economy remains low. Retailers are challenged with giving the consumer a reason to spend," said Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP.

"For the holiday season, many retailers resorted to a low-price message, but 'value' can mean many more things than price. Rather than mass marketing messages, retailers may need to target their marketing and advertising in order to reach the right consumers and rise above the cluttered promotional landscape.

For example, one interesting approach is offering loyalty programs to non-card holders that have spent above a certain threshold; this can increase share of wallet and encourage a new-found loyalty. In addition, retailers need to identify their unique value proposition and make sure their brand stands out within their sector. Knowing their customer, staying relevant and making sure they have the right merchandise are all important."

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