While it is unclear if the recent increase in government spending and the resulting increase in the budget deficit, has been a factor in the recent string of better than expected US economic data, at 2pm on Monday the US Treasury announced that in November, the government's budget deficit rose to $136.7 billion, nearly double the $64.5 bilion deficit reported in the same month of 2015, which however was largely a function of a calendar quirk.
Not only was November total more than double the amount reported a year ago, but the $136.7 billion deficit, was also the highest going back all the way to February of 2016, when it jumped by $192.6 billion. February is traditionally the most spending-intensive month for the US government.
Why the spike? Two reasons: in November, total receipts were down about 2% from the same month a year earlier. Meanwhile, total federal outlays rose roughly 25% compared with November 2015, when some scheduled benefit payments had been recorded instead in October 2015 because Nov. 1 fell on a Sunday. However, even when adjusting for the "quirk", the trend was concerning: the Treasury said that adjusting for that timing shift, spending rose about 6% last month from a year earlier and the monthly deficit widened by roughly 21% on the year.
This was the highest monthly outlay reported for the month of November in US Treasury history.
The calendar quirks continued: for the first two months of the 2017 fiscal year, the budget deficit totaled $180.84 billion, down about 10% from the $201.11 billion deficit in the same period a year earlier. However, because Oct. 1 fell on a Saturday this year, some federal payments for October were instead recorded in September, substantially reducing outlays in the current fiscal year; normalizing for the data would have shown a substantial increase in the US deficit in Fiscal 2017 compared to last year.
As noted one month ago, the federal budget deficit has once again started to rise after years of marked decline. The deficit totaled $587.33 billion in the 2016 fiscal year that ended Sept. 30, or roughly 3.2% of gross domestic product. That was up from 2.5% of GDP in the prior year.
The Congressional Budget Office in August estimated that the deficit would be 3.1% of GDP in the 2017 fiscal year and rise over the next decade as spending growth outpaces revenues, reaching 4.6% of GDP in 2026. Alas, that number will be woefully low: the CBO’s baseline projection assumes no major changes to current law and continued modest economic growth. President-elect Donald Trump and congressional Republicans have signaled that overhauling the tax system will be a priority in the coming year, though the details and potential effects on the deficit and economic growth remain uncertain.
Ironically, the budget is blowing out before Trump even is inaugurated. Should the increase in deficits persist, Trump may not even have to unleash a major spending program, as Obama may have quietly done it for him.