Our index of leading indicators moved back above 50 for the first time since January, reflecting a more positive tilt to recent economic data. That’s according to our October edition of Business Conditions Monthly, which we are releasing today.
However, as we cautioned when our index first fell below 50, one month does not make a trend. A single reading of 54 is not enough evidence to suggest the economy is on a significantly stronger trajectory. We still believe the results over the past eight months are consistent with an overall slow-growth environment and continued economic expansion.
One significant risk for the medium-term outlook is the fiscal position of the federal government. Federal government debt is up a whopping 123.1 percent since the end of 2007. Even more disturbing is the debt-to-GDP ratio for the federal government, at 97.5 percent at the end of the second quarter of 2016, compared with a long-term average of 67.2 percent.
Adding further concern is the projected path of federal debt and deficits. The latest Congressional Budget Office projections show annual budget deficits widening over the next several years, exceeding 4 percent by 2022 from just over 3 percent currently. As the presidential election approaches, greater attention needs to be paid to U.S. fiscal policy. Tax policy, spending policy, and the U.S. fiscal position are critical to the long-term health of the U.S. economy.
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