US: Treasury Budget


Thu May 10 13:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Treasury Budget - Level $88.0B $-5.0B to $130.0B $214.3B $-208.7B

Highlights
Individual tax receipts fed a strong $214.3 billion budget surplus in April that trims 2018's deficit, seven months into the fiscal year, to $385.4 billion which is still 11.9 percent deeper than this time last year.

Year-to-date receipts so far this fiscal year are up 4.1 percent to 2.007 trillion with individual taxes up 11.2 percent and corporate taxes down 24.5 percent. Year-to-date outlays, at $2.393 trillion, are up 5.3 percent led by net interest which is up 16.3 percent and also defense at a 4.7 percent gain.

A look at tax receipts so far in calendar 2018 vs the first four months of 2017, and a look at the initial effects of this year's tax cut, shows an 11.5 percent increase in individual taxes to $695.8 billion and a 30.3 percent decline in corporate taxes to $58.7 billion.

Excluding calendar effects, April's surplus falls to about $150 billion vs $140 billion in April last when also excluding special effects.

Market Consensus Before Announcement
Corporate tax receipts have been falling at the same time that spending has been going up. Six months into the 2018 fiscal year, the government's deficit through March was 13.8 percent deeper than the prior year. For April, a big tax month, forecasters see the Treasury budget coming in at a surplus of $88.0 billion.

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.