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Economy in Brief

Recession & War Swell U.S. Budget Deficit
by Tom Moeller November 13, 2008

To start Fiscal Year 2009, the U.S. government's budget deficit for October reflected the duel of effects from a U.S. recession and the War in Iraq.The monthly deficit jumped to $237.2B, more than four times last year's deficit of $56.8B. October's figure also was more than double Consensus projections for a deficit of $99.2B.

Many forecasts for the budget deficit during all of this fiscal year are near $700B. If realized, that would swell the deficit to about 5% of GDP following last year's roughly 3.2% and FY07's marginal 1.2%.

Net revenues during October suffered greatly and fell 7.5% from last year. Higher unemployment took the steam out of individual income tax receipts and they fell 9.7% from last October. Lingering payouts of the Government's "stimulus" checks reduced revenues somewhat. However the big negative factor would have been that payroll employment, and thus tax receipts, fell roughly 1.0% y/y. Suffering even more were corporate tax receipts which nearly evaporated with huge stated losses. Growth in unemployment and social insurance taxes grew a reduced 3.7%, the least since 2004.

U.S. government outlays nearly doubled versus last November lifted mostly by a jump in the "commerce & housing credit". Defense spending (19% of total outlays) rose an accelerated 17.9%. The gain does not reflect the full cost of the resources devoted to Iraq & Afghanistan since much of the spending would have occurred anyway. Medicare expenditures (12% of outlays) rose by nearly one-half but that followed an October decline Social security spending (21% of outlays) rose 6% after 6.8% growth last year. Net interest payments increased 4.3% y/y.

The Government's financial data are available in Haver's USECON database, with extensive detail available in the specialized GOVFIN.

US Government Finance   October September Y/Y FY 2008 FY 2007 FY 2006
Budget Balance -$237.2 $45.7B -$56.8B
-$454.8B -$161.5B -$248.2B
Net Revenues $164.8B $272.2B -7.5% -1.7% 6.7% 11.8%
Net Outlays $402.0B $226.5B 71.1% 9.1% 2.8% 7.4%
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