US: Treasury Budget

Mon Nov 13 13:00:00 CST 2017

Consensus Consensus Range Actual Previous
Treasury Budget - Level $-58.0B $-62.0B to $-48.0B $-63.2B $8.0B

The Treasury opens fiscal year 2018 with an October budget deficit of $63.2 billion, 37.9 percent larger than the $45.8 billion deficit in October last year. The larger deficit reflects an 11.6 percent increase versus October 2016 in outlays to $298.6 billion that outpaced a 6.2 percent increase in receipts to $235.3 billion.

Outlays were driven by a 14.6 percent rise in defense to $59.6 billion and a 21.6 percent year-on-year increase in net interest expenses to $28.6 billion. Medicare rose 7.7 percent year-on-year to $25.4 billion while outlays for social security rose 3.0 percent to $80.0 billion.

The bulk of the gain in total receipts came from individual income taxes which were up 5.1 percent compared to a year ago at $127.8 billion, and employment/retirement insurance, which rose 5.9 percent to $80.8 billion. High percentage (though much smaller in absolute terms) gains were seen in corporate tax receipts, which were up 63.8 percent year-on-year at $3.7 billion, while excise tax receipts increased by 30.8 percent to $7.5 billion.

Market Consensus Before Announcement
The Treasury ended fiscal 2017 with a $665.7 deficit and a 13.7 percent increase from fiscal 2016. October's budget starts off fiscal 2018 with a $58.0 deficit the expectation.

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.

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.