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Economy in Brief

U.S. Government Borrowing Surge Dominates Fed's Financial Accounts in Q2
by Carol Stone, CBE  September 21, 2020

• Gov't borrowing equals record 66.2% of Q2 GDP.

• Private sector borrowing slows.

• Net worth features upturn in stock prices during Q2.

The massive increase in federal government outlays tied to the COVID-19 impact on the U.S. economy led to a dramatic increase in government borrowing and total borrowing in the U.S. financial system during Q2 2020. According to the Federal Reserve's Financial Accounts published today for Q2, borrowing totaled $12.907 trillion, representing 66.2% of GDP, up from $9.418 trillion in Q1, 43.7% of GDP. These are both substantially larger amounts than almost any previous period. Indeed, the previous record share of GDP was 38.5% in Q4 1985. Note that all the dollar figures quoted here are seasonally adjusted annual rates.

The federal government borrowing was closely tied to COVID-related outlays. According to the Financial Accounts data, the spending category known as social benefits doubled, from $2.4 trillion in Q1 to $4.9 trillion in Q2. "Other transfer payments" also doubled, from $682 billion in Q1 to $1.44 trillion in Q2, and subsidies mushroomed from $74 billion to $1.086 trillion. Receipts, by contrast, fell from $3.75 trillion to $3.47 trillion. These moves led to borrowing by the federal government of $11.535 trillion in Q2, compared to $2.168 trillion in Q1.

The next largest borrowing category in Q2 was nonfinancial corporate business, which borrowed $1.398 trillion. While this was noticeably smaller than the $2.369 trillion in Q1, it still included the largest amount of corporate bonds on record in these data, $1.698 trillion versus $684 billion in Q1. The offsets in total corporate borrowing were net paydowns in loans, $15 billion versus net issuance of $1.7 trillion in Q1 and a paydown of commercial paper of $282 billion, extending reductions of commercial paper outstanding into a fifth quarter.

Households noticeably reduced their borrowing, using just $75 billion, markedly smaller than their Q1 borrowing of $604 billion. The main move here was consumer credit, which was paid down by $276 billion. Single-family mortgage borrowing decreased slightly to $317 billion from $353 billion in Q1.

Financial institutions had borrowed heavily for their category in Q1, $4.0 trillion, but paid down $1.4 trillion in Q2.

Net wealth in the total U.S. economy increased $7.068 trillion (quarterly rate, not annualized or seasonally adjusted) in Q2, a reversal of the $10.227 trillion reduction in Q1. This turnaround reflected a similar swing the market value of corporate equities, which had fallen $10 trillion in Q1 and recover $8.0 trillion in Q2. These moves are reflected in the household sector net worth, which saw a drop of $7.2 trillion in Q1 and a recovery of $7.6 trillion in Q2.

The Financial Accounts data are in Haver's FFUNDS database. Associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); these are carried in Haver's USNA database as well as in FFUNDS.

Financial Accounts (SAAR, Bil.$) Q2'20 Q1'20 Q4'19 Q3'19 2019 2018 2017
Total Borrowing* 12,907 9,418 2,391 3,960 3,082 2,853 2,721
    % of GDP 66.2 43.7 11.0 18.4 14.4 13.8 13.9
Federal Government 11,535 2,168 846 1,634 1,191 1,258 599
Households 75 604 546 519 507 491 550
Nonfinancial Corporate Business 1,398 2,369 8 629 456 276 538
Financial Sectors -1,410 4,020 170 539 377 348 326
Foreign Sector 220 -389 427 293 251 199 400

*Previously called "credit market borrowing" and includes debt securities plus loans. The total here includes borrowing by noncorporate business and state & local governments, not shown separately.

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