US: Treasury Budget

Mon Apr 13 13:00:00 CDT 2015

Consensus Consensus Range Actual Previous
Treasury Budget - Level $-43.4B $-50.0B to $-40.0B $-52.9B $-192.3B

The government's deficit came in at $52.9 billion in March, up from $36.9 billion last March. Six months into fiscal 2015, the government's deficit is up 6.3 percent from last year to $439.5 billion. Helping the balance so far this year are receipts, up 7.3 percent year-to-date and reflecting strong tax receipts where gains reflect economic strength. The downward pull is on the spending side, which is up 7.3 percent including an outsized 9.4 percent increase in Medicare spending tied to Obamacare that offsets a 3.0 percent decline in defense spending. But the government's deficit, though large, is not a factor right now in the economic outlook.

Market Consensus Before Announcement
February's Treasury deficit was $192.3 billion, slightly below last February's deficit of $193.5 billion. But the year-to-date deficit, five months into the Treasury's fiscal year, was slightly above last year, by 2.7 percent at $386.5 billion. Year-to-date receipts, led by gains in corporate and individual taxes, which both reflect economic strength, are up a solid 7.1 percent. This, however, was offset by outlays which are the larger side of the ledger and which were up 6.0 percent. Looking ahead, the month of March typically shows a deficit for the month. Over the past 10 years, the average deficit for the month of March has been $108.8 billion and $119.0 billion over the past 5 years. The March 2014 deficit came in at $36.9 billion.

The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance of the annual fiscal year (which begins in October) are followed as an indicator of budgetary trends and the thrust of fiscal policy.

The budget data have several direct and indirect meanings for the financial markets. The most direct relationship lies between the size of the budget deficit and the supply of Treasury securities. The higher the deficit, the more Treasury notes and bonds the government must sell to finance its operation. From there it's simple supply and demand -- if demand is constant but the supply of bonds goes up, the price goes down. The same is true if the deficit falls or is eliminated altogether -- the government needs to sell fewer Treasury bonds, so the supply drops and the price of T-bonds rises. In the past few years, the budget deficit has increased dramatically, and this has put more Treasury securities into the market place.

The Federal government borrows money through the issuance of Treasury securities; so higher deficits mean a larger supply of securities and (again, assuming constant demand) lower prices. With notes and bonds, lower prices are equated with higher yields, so in this example, the government borrows money at higher interest rates. That impact ripples across all other interest rate-bearing securities and creates a higher interest-rate environment for stocks, which is bearish.

In addition to following the trend in the budget deficit or surplus, investors can gain valuable insight to the state of the economy by looking at the government's tax receipts. Higher tax receipts lead to an improved deficit situation when economic conditions are strong; conversely, lower tax receipts reflect a sluggish economic environment.