US budget deficit to hit $1.28 trillion

August, 24th 2011

Washington: The Congressional Budget Office says the US budget deficit will hit $1.28 trillion (Dh4.7 trillion) this year, down slightly from the previous two years.Strong US durable goods and home prices data eases fears of another recession.

The nonpartisan agency also says budget deficits will be reduced by a total of $3.3 trillion over the next decade, largely because of the deficit reduction package passed by Congress earlier this month.

There is bad news in the report: CBO projects only modest economic growth over the next few years, with the unemployment rate falling only slightly by the end of 2012. The agency projects an unemployment rate of 8.5 per cent for the last four months of 2012. The presidential election is in November of that year.

Losses offset positives
US stocks pared gains, reversing a 1.1 per cent advance in the Standard & Poor's 500 Index, as losses in energy and technology companies offset better-than-estimated reports on durable-goods orders and home prices.

Energy companies in the S&P 500 slipped 0.8 per cent, the most among ten groups, and technology stocks slumped 0.6 per cent. Cisco Systems Inc retreated 1.1 per cent, the most in the Dow Jones Industrial Average. Bank of America Corp. surged 8.4 per cent after Meredith Whitney, the bank analyst who predicted Citigroup Inc's dividend cut three years ago, said it has no urgent need to raise capital.

The S&P 500 added 0.1 per cent to 1,163.59. The report on durable goods had wiped out a 1.4 per cent retreat in futures on the index, and equities briefly extended their advance following the housing report. The Dow added 16.58 points, or 0.2 per cent, to 11,193.34.

New orders for a range of long-lasting US manufactured goods rose in July, offering hope the ailing economy could dodge a second recession, even though a gauge of business spending fell.

Durable goods orders jumped 4 per cent, the Commerce Department said yesterday as demand for autos and airplanes surged, more than erasing June's 1.3 per cent drop. The rise was double economists' expectations.

But non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 1.5 per cent after rising 0.6 per cent.

Economists noted this so-called core capital goods category tends to be weak in the first month of a quarter and were encouraged that shipments of these goods had risen.

Since July, stock prices have dropped sharply and consumer confidence has taken a hit, suggesting the report on durable goods — items from toasters to aircraft meant to last three years or more — could be offering a rosier view of the economy than warranted.

In Germany, business confidence posted its steepest drop this month since the aftermath of the Lehman Brothers collapse in late 2008, raising fresh doubts about the broader European economy as it grapples with a crippling debt crisis.

Similar concerns hold in the United States.

"There is legitimate fear that businesses will shelve expansion plans and signs of such behaviour are evident in the August business surveys," said Aaron Smith a senior economist at Moody's Analytic.

Source: Gulfnews