The July Federal Budget Numbers–The Trouble Continues

The Treasury should be happy with its July 2010 budget report. The deficit fell from $180 billion in the month last year to $165 billion in the most recent month–something that the Administration can call progress. The $180 billion deficit was the highest-ever monthly number in history.

It would seem that the drop in the deficit year-over-year could be regarded as progress. but the figures used to derive the number did not show good signs. Outlays but the federal government dropped modestly from $332 billion last year to $320 billion in July of this year. That change is almost certainly because the government’s $787 billion stimulus package has been mostly spent.

Government receipts were static at $155 billion last month compared to $151 billion in July 2009. The stimulus has not done anything to improve economic activity if one of its goals is to cause an increase in taxes and progressively decrease in the deficit.

The next real challenge will be receipts for the last two months of the government’s fiscal–August and September. Last year these two months had totaled $365 billion. If the number does not increase at least modestly, questions about the viability of the stimulus package results will grow.

In the name of completeness, the deficit through the first 10 months of the federal fiscal is $1.169 trillion. Receipts have been $1.753 trillion and outlays $2.922 trillion. Those numbers keep the fiscal year on a pace to create a larger deficit than in last year. The 2009 fiscal year deficit was $1.417 trillion

The Congress and Administration talk about the coming need for austerity frequently, but, in practice, there is none of it. The economy has appeared to deteriorate badly in the last three months. Some analysts expect that revised GDP growth for the second quarter of the calendar year will yield a figure as low as 1%.

The rate at which receipts to the Treasury are likely to fall over the next year will almost certainly cause the deficit to balloon above the government’s forecast. The Monthly Treasury Report for July does not mention any of that.

Douglas A. McIntyre