Economic Trends, What Do They Mean?

From national trends to the local economy

The latest economic trends report by the Federal Reserve Bank of St. Louis reveals why City of Xenia officials think they need more of taxpayer's scarce financial resources. In 2009, the report shows a 3 percent increase in GDP, which means total revenue produces by all our work as a nation. That figure reminds me of pre-industrial era economic growth when governments and citizens lived within their means most of the time.

Coinciding with the low GDP was low industrial output reflected by a significant decline in payroll and sharp increase in unemployment. During 2009, industrial production increased by a meager 6 percent. At the same time, payroll declined by $5 million and unemployment rose from 7 percent to around 10 percent.

The loss of jobs and income resulted in the loss of homes, which in turn meant a loss of tax revenue for municipal governments including Xenia. The rise in the cost of gas that contributed to the rise of costs of food and other goods as well as services has made matters worse--not to mention Wall Street's short, like Soros, gleefully stuffing their pockets with our GDP revenue.

Nevertheless, long term government bonds have maintained their value while short term bond rates dropped to near zero. If that is also true of municipal bonds, then local governments are still giving our tax dollars at the same or possible higher dividend rates. This means less tax revenue for actual operating costs like paying police, fire, and street maintenance personnel.

While officials also claim higher costs for goods and services require higher taxes, the report shows the total increase of good and services represented by the Consumer Price Index (CPI) to be around 2.4 percent for 2009. That is quit low. The last quarter of 2008, inflation dipped to minus 2.5 percent. This could be interpreted as rendering overall inflation as near zero. As such, local governments use of higher costs to justify raising taxes does not appear to be warranted.

The best course of action by both government and taxpayers is one of fiscal restraint. Governments should decrease spending and tighten their budgetary belts. Taxpayers should restrain themselves from giving government tax increases until the economic trends show declines in unemployment to less than 6 percent, consistent payroll increases, and increased production figures i.e., industrial production, GDP, GDI, and the like.

Source:  National Economic Trends, May 14, 2010


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