US: Treasury Budget

Tue Dec 12 13:00:00 CST 2017

Consensus Consensus Range Actual Previous
Treasury Budget - Level $-134.0B $-146.0B to $-74.1B $-138.5B $-63.2B

Two months into fiscal 2018, the Treasury's deficit is $201.8 billion which is 10.6 percent deeper than this time last year. The deficit for the month of November, which is today's update, came in near expectations at $138.50 billion.

Outlays so far this fiscal year are up 6.9 percent at $645.5 billion and led by a 7.0 percent increase in defense at $107.1 billion and a 5.9 percent increase in net interest expense at $60.0 billion. Receipts are up 5.3 percent at $443.7 billion reflecting a 6.2 percent increase in individual income taxes which are at $226.5 billion.

If a tax-cut agreement is reached in Washington, the receipt side of this balance sheet will begin to get extra close attention.

Market Consensus Before Announcement
The Treasury opened fiscal year 2018 with an October budget deficit of $63.2 billion, 40 percent larger than the $45.8 billion deficit in October last year. The larger deficit reflected an 11.6 percent yearly increase in outlays to $298.6 billion that outpaced a 6.2 percent increase in receipts to $235.3 billion. The Econoday consensus for November's Treasury deficit is $134.0 billion.

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.