One month ago we already knew that the U.S. budget deficit for the 2018 fiscal year – Trump’s first full year in office – would be jarring after the August deficit soared to $211 billion, nearly double the deficit gap from one year ago (largely due to calendar quirks) which on a cumulative basis for the first 11 months of the fiscal year was a staggering $895 billion, $222 billion or 39% more than the previous year. This was largely due to outlays which climbed 7% while revenue rose a mere 1%.
Today at 2pm we got official confirmation of the rapid expansion in the US budget deficit when the Treasury announced that in Trumps first full fiscal year as president, the U.S. budget deficit grew 17% to $779 billion from $666 billion…
… the highest full year total since 2012 amid tax cuts and spending increases, if below the trailing 12 month total as of August which, as noted above, was a whopping $895 billion.
The budget gap for the 12 month period ended September was 17% greater than the same 12-month period a year earlier, as spending rose 3.2% and revenue gained just 0.4%.
The deficit as a share of GDP was 3.9% in fiscal 2018, up 0.4% point from the prior year.
To fund this deficit, the U.S. government borrowed $1.08 trillion from the public in Fiscal 2018, more than double the amount borrowed in 2017 ($498.3 billion) and the most borrowed from the public in a fiscal year since FY’12.
There was some good news: contrary to more pessimistic expectations, the surplus for the fiscal year’s final month of September jumped to $119 billion, the largest windfall for the last month of any fiscal year on record. However, like in August, there were calendar effects in play – and if not for timing shifts, last month’s surplus would have been just $44BN, $7BN (13%) less than Sep ’17 surplus.
In actual terms, the surplus was the result of a sharp drop in Federal Outlays from $433.3BN in August to $224.4BN in September, down from $340.8BN a year prior. This was the lowest one month spending total since June 2013.
At the same time receipts jumped from $219.1BN in August to $343.6BN in September, fractionally lower than the $348.7BN collected a year prior.
But the most troubling observation in the latest data was that the government paid $523 billion in total interest in fiscal 2018, the highest on record.
But wait, there’s more, because as we warned last month, these numbers are set to deteriorate rapidly: according to the Congressional Budget Office, the government deficit will hit $973 billion in fiscal 2019 and rise above $1 trillion the next year. That would be the first time the deficit exceeds $1 trillion since 2012, when the American economy was still recovering from the Great Recession.
A key culprit for receipts not keeping up with spending are Republican tax cuts, while increased federal spending and an aging population have also contributed to the fiscal strains, though the GOP says tax reform enacted this year will spur economic growth and lift government revenue. Meanwhile, corporate income-tax receipts fell 31% in fiscal 2018 while individual income taxes gained 6.1%.
“America’s booming economy will create increased government revenues – an important step toward long-term fiscal sustainability,” Trump’s budget director, Mick Mulvaney, said in a statement accompanying the Treasury report. “But this fiscal picture is a blunt warning to Congress of the dire consequences of irresponsible and unnecessary spending.”
And more bad news: in order to finance the soaring budget gap, the US Treasury will aggressively increase the pace of debt issuance, borrowing $769 billion in the second half of the current calendar year. That would be the most since 2008. The full year number for 2019 is expected to be well over $1 trillion, and has been cited by some as the reason behind the recent blow out in interest rates.
Cited by Bloomberg, Trump’s top economist, Kevin Hassett, said this month the president will unveil measures soon to address the shortfall, although he did not provide specifics.
“The deficit is absolutely higher than anyone would like,” Hassett said. And, looking ahead, it’s set to keep rising indefinitely until finally something breaks.