My Fiscal Liquidity Index

Commentary from my daily report, "The Fiscal Liquidity Index."

(The Index is something that I created that tracks "net spending" by the government.)

Current situation:
The Index was positive for the eighth consecutive day at 30.6, however, it was down slightly from Tuesday’s reading of 35.3. The raw (un-smoothed) index held steady at 27.8. Treasury had a gross deficit of $100.7 bln. You have to go all the way back to Mar 2011 to see a higher monthly gross deficit. Remember, deficits add to private sector financial balances, so this is definitely a positive development. Real net spending (total outlays adjusted for public debt redemptions) totaled $231.4 bln. That is $51.2 bln above last month so it is another piece of good news. It shows that net spending is quite strong and we know that positive net spending adds to demand. There is, however, one caveat. Employment tax receipts are trending down and are now running near the lowest level of the year when compared to the same period in 2011. And when you look at the data it seems to be suggesting that employment peaked on or around Jan 17. If so, it may be the first sign of economic weakness in what has generally been a pretty strong beginning of the year. The divergence indicator was 112.7, so the risk level remains orange.

Fiscal Liquidity Index for 2/2/2012

Current situation:

The index closed negative once again, but with some marked improvement at -45.3. That is actually the least negative it has been in eleven days. The raw (un-smoothed) index was -5. That’s the best reading in 33 days and it’s almost back in positive territory. As I suspected, right after the debt ceiling was raised Treasury sold a bunch of debt and is now in the process of spending those proceeds back into the economy. That means the indices are likely to turn positive in the next day or so. Treasury started Feb off with a gross deficit of $37.9 bln. That compares to a gross surplus of $2.7 bln at the start of Jan. Deficits are good because they add to private sector financial balances. Real net spending (total outlays adjusted for public debt redemptions) totaled $55.8 bln. That is $6.7 bln below last month. So we see that the big deficit at the start of the month was mainly due to redemptions and not actual spending. The divergence indicator was 170.9. That’s still red, but it’s come down quite a bit and getting close to going back to orange.

Fiscal Liquidity Index for 2/1/2012

Current situation:

The negative streak continued with the Index now logging an uninterrupted 30 days in the red. That is, by far, the longest negative streak in the three years since I have been collecting the data. The reading was -69.9, which was actually a slight improvement from the prior day’s reading of -78.2. The raw (un-smoothed) index showed some improvement as well, to -49.7 from Tuesday’s reading of -81.3. Treasury had a gross surplus of $72.9 bln for the month so far. That is the highest surplus since Aug 30, 2010. Surpluses are worrisome since surpluses drain private sector financial balances. Large ones do that that even more so. But it’s important to note that yesterday’s surplus was really the result of the first sale of Treasuries since the lifting of the debt ceiling. The Treasury sold $117.4 bln of public debt securities. It’s very likely that these funds will be quickly spent back into the economy. Real net spending (total outlays adjusted for public debt redemptions) totaled $321.7 bln. That was $20.9 bln above the same time last month. The divergence index was 194. That keeps the risk level at red.

Daily fiscal update

I will be publishing my daily fiscal update (DFU) from now on. It is a commentary based on my reading of the Daily Treasury Statement. Please email me if you have any questions.

Current situation for 1/31/2012:

The Index was negative, but improved a bit to -78.2 from the prior day’s reading of -82.7. The raw (un-smoothed) index went the other way, dropping to -81.3 from -78.7 on Monday. Treasury continued to run a surplus at $23.2 bln. That is $17.4 bln more than at the same time last month. Surpluses are negative because they drain private sector financial balances. Real net spending (total outlays adjusted for public debt redemptions) totaled $304.1 bln. That is $14.4 bln more than the same time last month. Spending momentum is now starting to slow for the first time since Jan 17. For the fiscal year so far, total spending is down $338.6 bln versus last year. That is huge. It’s about 2.0% of GDP and we’re only growing at 2.8%. And if you subtract out inventories and auto sales then it’s a 2.0% subtraction from 0.5%, which means negative growth of 1.5%. Really bad...recessionary stuff. The debt limit was raised to $16.4 trillion yesterday. We’ll see if that increase results in a pickup in spending. The divergence indicator was 190.6. The risk level is still red.