Economy Watch: One Hard Budget Vote Down, More to Come

As the world well knows, the federal government didn’t shut down over the weekend. A deal was done practically at zero hour, meaning that federal workers will be at work on Monday morning, $39 billion (or about 1/1000) of the federal budget will disappear, and tourists will have something to do in D.C. this week.

Yet the stage is also set for the next critical spending vote–a much more critical spending vote by Congress, in fact–namely raising the current $14.25 trillion debt ceiling. The government has just a few weeks of borrowing authority left before it hits that ceiling with a thud that might be heard around the world, if the U.S. starts defaulting on its obligations. In the past, raising the ceiling has mostly been a matter of routine housekeeping, but this time around it’s a political football. A few hotheads in and out of Congress are even calling for the ceiling not to be raised.

Fitch, at least, is optimistic that any game of chicken over the debt ceiling will not actually go nuclear. “The brinkmanship over the debt ceiling and the 2011 budget will be resolved,” David Riley, head of sovereign ratings at Fitch, told The Wall Street Journal last last week. Fitch still rates U.S. debt as AAA, its highest rating.

Retail Sales Edge Up in March

Kantar Retail, a Columbus, Ohio-based retail consultancy, reported late last week that retail same-store sales were up 2.5 percent this March, compared with a year ago. Americans are still spending, but not quite as much, since the year-over-year increase in February was 4.4 percent. The company surveys sales at 28 major retail chains.

A late Easter, which is on April 24 this year compared with April 4 last year, could be one of the factors in slowing March sales. Another factor might be those pesky weekly increases in the price of gas.

“What’s encouraging is that the Easter-related letup in sales wasn’t as severe as expected by a number of retailers—especially in light of the additional drag of higher fuel prices,”  Frank Badillo, senior economist at Kantar, said in a statement. “Sustained growth in jobs and income may be helping to alleviate some of the pain.”

Greece Debt Crisis: The Sequel?

For those nostalgic for the spring of ’10 Greek debt crisis, German Finance Minister Wolfgang Schaeuble floated the possibility over the weekend that the Greeks might need more help to fix their debt problems. The Greeks, as might be expected, countered that suggestion by claiming that last year’s bailout is on track, and no more help will be needed.

Lending to the Greeks remains risky business, but the returns, assuming they materialize, are good. Ten-year Greek bonds pay 938 basis points more in interest than the relatively riskless German equivalent. As a matter of comparison, the Irish-German bond spread is 577 basis points, and the Portugese-German spread is 518 basis points.

Wall Street had the jitters on Friday as talk of the federal government shutdown continued through the trading day, and the markets went negative. But not too much: the Dow Jones Industrial Average was down 29.44 points, or 0.24 percent, while the S&P 500 lost 0.4 percent and the Nasdaq declined 0.56 percent.