Upbeat US Economic Indicators Amid Record Federal Deficit Projections

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25 August 2009


U.S. dollars
U.S. dollars

The U.S. economy is showing further signs of recovery, even as America's national debt continues to skyrocket.

Despite some of the most challenging economic conditions in decades, American consumer confidence jumped unexpectedly this month, a sign that widespread pessimism might be dissipating.

The New York-Based Conference Board reports that its consumer confidence index stands at 54.1, up from a revised 47.4 reading in July. "Confidence is on the mend. There is still a lot of apprehension. Consumers definitely feel that the worst is behind us, but we still have a ways to go," said Lynn Franco, who heads the group's consumer research center.

Even with the rise, the latest figure remains nearly 50 percent below the consumer confidence number reported two years ago. Nevertheless, rising confidence is a welcome sign, as consumer spending accounts for more than two-thirds of U.S. economic activity.

America's battered housing sector also got a dose of encouraging news, with a national index reporting a three percent jump in housing prices in the second quarter of this year.

"There has only been one quarter of positive news. But just looking at the latest data, it does look like there might be some stability in the [housing] market at this point," said Maureen Maitland of Standard and Poor's.

Falling housing prices have been a major contributor to U.S. economic woes since 2007. A rash of home mortgage defaults helped spark last year's financial meltdown.

Tuesday's upbeat economic data stand in contrast to gloomy budget deficit projections. The White House and the non-partisan Congressional Budget Office, or CBO, project a federal deficit of about $1.6 trillion for the current fiscal year -- a record-high, although slightly less than had been projected a few months ago.

Swelling debt is no surprise, according to John Irons, who directs research at the Washington-based Economic Policy Institute. "Both reports are very stark reminders of the steep recession that we find ourselves in. Lower incomes, lower business activity are largely driving the revenue side. On the spending side, there are some higher outlays that are due to the recession, also. Obviously, unemployment at high levels means that there is more demand for public services," he said.

Irons says temporary deficits are normal and even desirable during severe economic downturns, but must be corrected in the long term. But the White House and the Congressional Budget Office say that America's national debt will continue to expand for years to come, even assuming that the U.S. economy will begin to recover at the end of this year.

During the next decade, the White House estimates America's national debt will grow by $9 trillion. The CBO projection is $7 trillion. The difference between the two estimates lies primarily in the fact that the CBO assumes the expiration of Bush administration-era tax cuts, while the White House is assuming that President Barack Obama will honor his pledge against allowing taxes to rise on families earning less than $250,000 a year.