US: Treasury Budget


Fri Oct 20 13:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Treasury Budget - Level $3.0B $-3.0B to $48.0B $8.0B $-107.7B

Highlights
The Treasury ends fiscal 2017 with a $665.7 billion deficit, 13.7 percent higher than $585.6 billion in fiscal 2016. Driven by net interest and Social Security payments, outlays rose 3 percent in the year to $3.98 trillion. Outlays over matched a 1.5 percent rise in receipts to $3.31 trillion which got a boost from a 2.7 percent rise in individual taxes to $1.59 trillion. Corporate taxes fell 0.8 percent to $297.0 billion. As a percentage of GDP, the deficit comes in at 3.5 percent vs 3.2 percent in fiscal 2016. Note that the month of September ended the fiscal year at an $8.0 billion surplus.

Market Consensus Before Announcement
Ten months into fiscal year 2017, the government's deficit in July was tracking 10.6 percent above fiscal year 2016. The spending side is where the red ink lies with increases in Social Security payments and net interest. Higher receipts, led by individual income taxes, are only a partial offset to the rise in spending. The Econoday consensus for August is calling for a $3.0 billion surplus. Note the exact day of this release is still undetermined.

Definition
The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance reflect Federal policy on spending and taxation. The government's fiscal year begins in October.



Description
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.