White House set for $1.6 trillion budget deficit in 2010. This would be a new record and, as a share of the economy, the biggest since World War II. President Obama's budget proposal will be released this morning.
U.S. economic growth sees big jump. A faster-than-expected 5.7% pace in the fourth quarter is the quickest in more than six years. Growth was buoyed by a sharp slowdown in the pace of inventory liquidation - it was the biggest percentage contribution inventories have made since the fourth quarter of 1987. But even stripping out inventories, the economy expanded at an annual rate of 2.2%, accelerating from the 1.5% increase in the third quarter, reflecting relatively strong performance from other segments of the economy. The robust performance closed out a year in which the economy contracted 2.4 percent, the biggest decline since 1946. The quickening fourth-quarter pace suggested a sustainable recovery was building. In a further boost to recovery hopes, the Institute for Supply Management-Chicago said its business barometer rose to 61.5 in January, the highest in four years, from 58.7 in December.
Consumer confidence improves. According to the Reuters/University of Michigan Surveys of Consumers' report, January consumer sentiment rose to 74.4 from 72.5 in December. Consumer spending increased at a 2% annual rate in the fourth quarter, contributing 1.44 percentage points to GDP. In the third quarter, consumer spending had risen at a 2.8% pace, supported by the government's "cash for clunkers" auto incentive program.
IMF raises economic growth forecast. Last Tuesday the IMF said the world economy will expand by 3.9% in 2010, much higher than the 3.1% it projected in October, and the pace will pick up to 4.3% next year. The IMF cast developing countries in a leading role while rich nations struggle with high unemployment and government debt. The Fund said many central banks can afford to maintain low interest rates this year as underlying inflation is expected to remain low and unemployment stay high for some time.
Federal Reserve leaves rates unchanged as economic activity strengthens. Last week, the Federal Reserve renewed its promise to keep benchmark rates exceptionally low for an extended period and, as expected, left the Fed funds rate unchanged. Information received since the Federal Open Market Committee (FOMC) met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls.
Home prices see modest November gain, but December sales plunge. Home prices managed a 0.2% seasonally adjusted gain in November from the previous month, according to the Standard & Poor’s Case-Shiller Home Price Index. A second index released last week showed a healthier market. The Federal Housing Finance Agency said its price index - which uses data from mortgages that have been sold to or guaranteed by the government - rose 0.7% in November. However, home sales plunged more than expected in December, raising fresh questions about whether the housing market can function without ample government assistance. Sales of existing homes in December fell 16.7% from November, to a seasonally adjusted annual rate of 5.45 million units. Sales of existing homes were pushed up in the fall by fears that the government’s $8,000 tax credit for first-time buyers would be allowed to expire as scheduled at the end of November. As buyers rushed to sign contracts, sales rose to an annual rate of 6.54 million units in November, the highest level in nearly three years. The credit was broadened and extended in November, and potential buyers may have lost their sense of urgency. December sales were at the lowest annual rate since August, though still 15% higher than December 2008.
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