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Economy in Brief

U.S. Budget Surplus Up Due to Strong Receipts
by Tom Moeller February 13, 2006

The U.S. federal government posted a wider budget surplus during January as net revenues held on to a strong increase during December. The surplus, common during past Januarys, nearly doubled y/y to $21.0B. The fiscal year to date budget deficit shrunk as a result to $98.3B from $109.5B during the first four months of FY05.

Net revenues did fall 4.9% during January but the decline barely dented a 74.4% December surge. Individual income tax receipts (44% of total receipts) jumped 36.4% (19.2% y/y) during January following a two thirds increase during December. That made up for a m/m drop in corporate income taxes (10% of total receipts) which remained up 40.2% y/y.

The improved job market raised employment taxes (36% of total receipts) 6.3% y/y.

U.S. net outlays fell 9.5% m/m during January but fiscal year to date outlays rose 7.5% y/y. Defense (19% of total outlays) for the first four months of FY06 were up 8.2% from the year prior. Medicare spending (12% of total outlays) rose 5.9% y/y and spending on social security (21% of total outlays) rose 5.7%. Spending on health programs (10% of the total) rose 3.0% while spending on education & training (4% of the total) fell 3.3% y/y. Interest expense (8% of the total) grew 22.4% with higher interest rates.

The latest projections from the US Congressional Budget Office are available here.

US Government Finance Jan Dec Y/Y FY 2005 FY 2004 FY 2003
Budget Balance $21.0B $11.0B $8.6B (1/05) $-318.3B $-412.7B $-377.6B
  Net Revenues $230.0B $241.9B 13.7% 14.5% 5.5% -3.8%
  Net Outlays $209.0B $230.9B 7.9% 7.8% 6.2% 7.4%
OECD Leaders Rose Further
by Tom Moeller February 13, 2006

During December, the Leading Index of the Major 7 OECD economies capped a year of slower growth for the full year of 2005, but improvement in the second half. In fact, a 0.6% December rise pulled the average monthly gain during 2H '05 to 0.4%, the best since early 2004, and lifted the leaders' six month annual growth rate to 3.5%.

During the last ten years there has been a 66% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.

Japan's leading index showed marked improvement as the year progressed and logged a 0.5% increase in December, the strongest since in over two years. It raised the six month growth rate to 2.4% though earlier growth rates were revised lower. The leaders' correlation with real economic growth in Japan has been a meaningful 40% during the last ten years.

The U.S. leaders posted a 0.9% rise during December that was the firmest since late 2003. It raised the leaders' six month growth to 4.3%, up sharply from the negative growth rates logged early in 2005. The correlation between the leaders' growth rate and real GDP growth has been a high 73% during the last ten years.

Leaders in the European Union (15 countries) continued on the moderate growth path in place since June and rose 0.3%. The rise raised the six month growth rate to 3.4%, the best since June '04. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the GDP volume index for the European Union.

TheGerman leading index increased 0.5% for the eighth consecutive monthly increase. As a result the six month growth rate increased to 6.0%, the best since early 2004.

The 0.3% December gains in the French leaders was the slowest since June but the six month growth rate nevertheless rose to 4.4%, the best since mid-2004. To the downside, the Italian leading index fell for the third straight month and the 0.1% decline lowered the six month growth to a negative 1.3%.

The UK leaders were unchanged for the second month but the six month growth rate picked up to a positive 0.4%, off the negative lows of early 2005.

The Canadian leaders improved sharply for the second month with a 1.5% increase that followed an upwardly revised 0.9% spurt during November. The six month growth jumped, as a result, to 4.2%, its most promising since early 2004 The correlation of the leaders' growth with Canadian real GDP has been 49% during the last ten years.

The latest OECD Leading Indicator report is available here.

OECD Dec Nov Y/Y 2005 2004 2003
Composite Leading Index  104.53 103.89 1.8% 102.77 102.37 97.87
 6 Month Growth Rate 3.5% 2.5%   0.6% 3.5% 2.7%
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