Federal spending slowing down. Stocks maybe stall out here.

Spending is still up year-over-year by $35 billion, which is good, however, the rate of spending growth is slowing so we could see the stock market stall out here.

I don't think the spending slowdown is fatal by any means, it's just a "downshifting."

Economy may be at "stall speed"

I know the jobs report bounced back and everyone got all excited and clearly, it's a good sign because it would have been a nail in the coffin, I think, for the growth trend for the remainder of the year had that not happened.

However, looking at Federal Government spending trends--and there is the risk that I am getting too "micro" in my analysis, here, but nonetheless--it seems to me that spending data has slowed to a stall, at least the way I see it, and that suggests the economy is also at a stall.

Spending could pick up and, admittedly, it is looking a little bit better now than it looked around the first and second weeks in April and I understand that April, being tax month, is when individual and firms' bank accounts get drained so there is some seasonality at play here.

With respect to that latter comment, being that this is the seasonal, "Sell in May and go away" period and the market is hanging in there pretty well (i.e. undergoing perhaps a "churning" correction), then things may actually not be all that bad.

I will see in the coming days, based off flows from the DTS, what it looks like.

#Itsnotaboutthedeficit

Stocks and economy could be in trouble

Recently I have been commenting that the projected, $4.3 trillion in topline government spending is not going to be sufficient to  keep the economy from achieving anything more than zero growth and actually, we probably had negative growth in the first quarter because when the revision comes in later this month it will take into account the huge trade deficit.

Normally, a $4.3 trillion spending pace would be excellent. Indeed, that would only be the second annual spending increase since 2009 and it would be far larger than the measly $10 billion we saw last year versus FY 2013. (This year projected near a $200 billion increase.)

The size of that increase might already be in trouble, but I'll get to that in a minute; it's not the reason for my worries.

My concerns stem from the fact that we are seeing a serious slowdown in Personal Consumption Expenditures, which is the largest component of GDP and additionally, an actual contraction in State and Local Government spending.

Those two elements of GDP are conspiring to put growth in negative territory and while some say it was just a weather related abberation, I am not so sure. We may get a better sense on Friday when the April jobs figures are released, but if they're weak once again (and the numbers from the Daily Treasury Stateement ARE NOT encouraging), then it seems it could be more than weather at play.

All of this would be bad enough on its own, but I also alluded to the fact that the pace of government spending in the last month has been starting to slow. Early on in April spending for FY 2015 was running about $110 billion above FY 2014, but that number has recently dropped to $94 billion. Still a nice positive, but not on target to hit that $200 billion increase year-over-year.

What's also bad is the following:

1. We are currently operating under a debt ceiling and without a budget agreement out of Congress
2. The debt ceiling has not had an impact yet and Lew has not had to really engage extraordinary m easures to pay bills because tax revenues have been on the high side.
3. However, tax revenues will start to fall off significantly if the economy is indeed in a contraction, which I believe it is.
4. That's when the debt ceiling and all kinds of hell will break loose.

What does this mean for the markets?

1. Stocks are in trouble.
2. The dollar is in trouble (Bill Gross may actually get one right!)
3. The Fed will not raise rates and that whole entire expectation will get blown up.
4. Bonds  likely to rally sharply and Fed could engage in new monetary measures, but only after significant time and disruption. This is not the Bernanke Fed nor is it the Paulson Treasury. These people WILL NOT MOVE  QUICKLY.

In addition, fiscally, it looks like a train wreck because every single policy maker out there, no matter whether they're on the right or the left, thinks we have to balance the budget. So does the public.

What it all means is that this could end up to be a really bad ride.

So, I think here's the way to play it:

1. Sell the dollar.
2. Hedge your stocks or stay in cash and wait for a time to buy aggressively, but it probably won't be for a while.
3. Step aside as the real estate bubble implodes, especially in the high priced bubble areas like NYC. (Manhattan, for sure.)

Fiscal snapshot: April ends with $373 billion in spending. Not bad, but some dark clouds are gathering.

Okay, so here's the end of April fiscal snapshot. It's not great news. It's not a disaster (yet), but it's not great in my opinion.

For the month of April the Federal Government spent $373 billion. That surpassed last April by $3 billion. Year-over-year Federal spending is up by $91 billion. That's the good news. We're on track at this pace to hit, almost, $4.3 trillion in total top-line spending for the fiscal year. That would be the first real increase since 2009.

That's good.

Here's the problem: Spending is stalling. Just about a month ago we were $110 billion over last year. The pace of spending over FY 2014 is slowing. This is not surprising because since mid-March Treasury has been running under  the debt ceiling constraint. These idiots in Congress still have not done anything  on the debt ceiling or the budget and who knows what kinds of measures, if any, Lew is using to pay the bills and that may not be able to last forever.

Furthermore, both CBO and OMB were predicting closer to $200 billion in spending above last year. We're coming in nowhere near that. I'm sure the morons over at Fix the Debt are elated. Jerks.

Now for the bad news (if you listen to other MMT economists). The deficit through the fiscal year so far is a paltry $252 billion. That's only 1.4% of GDP. The freakin' budget is almost in balance. The White House should be popping champagne corks, but they're too stupid to realize and also too stupid to understand that this is unequivocally NOT a good thing. Morons as well.

The top-line stall in spending is worrisome, at least to  me. Without a concomitant increase in non-government indebtedness, then it could mean trouble for the economy/stocks. Furthermore, higher private sector debt accumulation is not anything to cheer about, except maybe if you're a banker. It's just that we can go a while before debt service levels reach the tipping point, like where they were in 2007.

All data from the Daily Treasury Statement, of course. Remember, I teach a course on this, so if you want to learn how to do all this analysis and be able to read that Daily Treasury Statement then sign up for my course. It's well worth it. There's one coming up this Saturday. It's online. If you want to enroll please go to the link below.

Daily Treasury Statement course, Saturday, May 9.