The financial press is inundated with discussions about the federal deficit and debt and the consequences thereof and our commentaries have addressed this matter also.  At the cost of reiterating, we would like to share a picture (see chart 1) that presents the challenge of federal budget deficits succinctly.  Congressional Budget Office (CBO) projections indicate (see chart 1) federal outlays as a percent of GDP will consistently exceed revenues even after the economy moves away from the peak in outlays arising from the financial crisis and associated recession.  On average, the federal revenues have been about 18% percent of GDP during the post-war period.  The CBO projections for the years 2012-2020 (see chart 1) point to revenues exceeding the historical median/mean measures of federal revenues as a percentage of GDP, which makes these estimates optimistic.  Federal revenues have exceeded the historical mean only in a few instances when the economy grew at a rapid clip.  The fundamentals of the economy at the present time offer little support for predictions of a strong performance in the years ahead.  The graying of the population and associated social costs suggest that the projection of outlays, despite an upward trajectory in the last five years of the projection period, is possibly rosy also.  Need we say more? 

 

Wholesale Inventories:  Inventory-Sales Ratio at Record Low

Wholesale inventories fell 0.2% in January after a 1.0% drop in the prior month.  The January decline reflects a 0.3% increase in inventories of non-durable goods and a 0.5% drop of durables.  Sales at the wholesale level rose 1.3% in January vs. a 1.2% increase in the prior month.  The inventory-sales ratio edged down to a record low of 1.10 in January from 1.12 in December.  The factory inventory-sales ratio held steady at 1.29 in January.  Data for the retail sector will be published on March 12.  The retail inventory-sales ratio in December was 1.37, down from 1.62 a year ago.  The significantly low inventory-sales ratios across the economy suggest that inventories will make a substantial addition to real GDP in one of the quarters ahead as demand strengthens.