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The US Government Delivered an Unexpectedly Large Budget Surplus in June

According to the Monthly Treasury Statement, the US government reported a budget surplus of $116.5B, which is the widest surplus since April 2008. Moreover, June’s surplus was the largest on record for that month and was also higher than the $115 billion surplus expected by the CBO and by economists surveyed by Bloomberg.

 

Revenue climbed 10.2% YoY to $286.6B, while outlays plunged 46.8% YoY to $170.1B. As a consequence, the difference between the surplus in June and deficit last year at the same period was $176.24B.

 

Rising incomes with improving economy and tax increases enacted earlier in the year helped cause government receipts to rise. As an example, since October 2012, (beginning of the current fiscal year), the economy has added 1.84 million of jobs (204K/month). On the other side, government spending plunged due to package of spending cuts passed in January (fiscal cliff) and March (sequestration). As an illustration, Gross outlays at the Department of Defense and for military programs, are down about 7 percent in the fiscal year to date from the same period a year earlier.

 

That has made overhauling public pension and healthcare systems a little less pressing. Indeed, although the US government is still $510B in the red with three months to go in the fiscal year, June’s surplus will buy it time before it runs up against the limit on borrowing set by Congress. CBO expects the Treasury to hit the debt ceiling by October or November.

 

 

 

Nevertheless, people need to know that several exceptional factors helped to boost the surplus in June as government owned mortgage firms, Fannie Mae and Freddie Mac, added $66.3bn in payments (they have been in public ownership since 2008) and calendar effect was favorable.

 

More from Businessinsider:

 

“Some of the swing in the budget in today’s report for June will be exaggerated by calendar quirks and a payment from Fannie Mae, but the trend is clearly toward improvement,” said High Frequency Economics’ Jim O’Sullivan before the statement was released.

Higher Receipts in US Will Delay Debt Ceiling Deadline

In February 2013, President Obama signed legislation suspending the $16.4 trillion debt limit through May 18 (next Saturday). Fortunately, the government will be able to keep buying its bill at least until September because of a significant improvement in public finances. The fact is that an improving economy has swelled tax revenue and budget cuts (fiscal cliff on January 1, sequestration on March 1) have limited outlays.
 
As an illustration, on May 10, the US Treasury posted its widest budget surplus in five years in April. The surplus for the month, when tax payments are due, increased to $112.9 billion, 91% higher compared to the same month a year earlier. Through the first seven month of the 2013 fiscal year, the deficit is $488 billion, 32% lower than the same period last year. The fact is that since October, US employers has added 1.4 million workers boosting government receipts.
 
This improvement has eased pressure on lawmakers to lift the nation’s debt ceiling while Fannie Mae, the mortgage-financier seized by US regulators in 2008, said on May 9, it will pay the Treasury $59.4 billion by the end of June after reporting a record quarterly profit driven by rising home prices and declining delinquencies.
 
As a consequence, US Treasury Secretary Jack Lew told CNBC on May 10 that the one-time payment of Fannie Mae pushes back the debt ceiling deadline effectively fom May 19 “until at least Labor Day”, which falls on September 2. Note that on May 9, the Bipartisan Policy Center estimated that the debt ceiling could be pushed out even further, until sometime in October.
 
In these conditions,we expect that critical debates between Democrates and Republicans wouls start happening in July (like in 2011 when US where downgraded by S&P) before the August Congress recess.
 
To conclude, the significant improvment in US public finances in the 2013 fiscal year should lead to a lower than expected deficit around 4.5% of GDP. Besides, if the economy remains supported by the residential real estate in the next two years, the deficit could be less than 3% of GDP in 2015.