US: Treasury Budget

Thu Oct 15 14:30:00 CDT 2015

Consensus Consensus Range Actual Previous
Treasury Budget - Level $95.0B $90.0B to $95.0B $91.1B $-64.4B

The Treasury's deficit narrowed by 9.2 percent to $438.9 billion in the now complete 2015 fiscal year. As a percentage of GDP, the deficit fell to 2.5 percent from 2.8 in fiscal year 2014. Both the total deficit and the ratio to GDP are the best readings since fiscal year 2007.

Receipts from individual taxes came in at $1.54 trillion for a 10.5 percent gain with corporate taxes at $343.8 billion for a 7.2 percent gain. Looking at the spending side of the balance sheet, Social Security rose 4.4 percent to $887.8 billion while Medicare rose 6.7 percent to $546.2 billion. Defense spending fell 2.3 percent to $591.4 billion.

Turning to the month of September, which is the last month of the Treasury's fiscal year, the Treasury posted a surplus of $91.1 billion.

Note that the opening two months of the fiscal year 2016 are not tax months, which points to deficits heading into what may be next month's debt-ceiling standoff in Washington.

Market Consensus Before Announcement
The Treasury budget report for September will close out the government's fiscal year. Forecasters see a surplus of $95.0 billion in the month which would be down from $105.8 billion last September but more than enough to end a positive year for the budget which, as of August, was running 10 percent below fiscal 2014.

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.