Economy Watch: CBO Says Budget Deficit Shrinking for Now

By Dees Stribling, Contributing Writer

The Congressional Budget Office said on Tuesday that, as the economy has recovered and spending cuts came into force, the federal budget deficit has fallen sharply during the past few years, and is on a path to decline further this year and next. The CBO estimates that under current law, the deficit will total $514 billion in fiscal 2014 (which ends on Sept. 30), compared with $1.4 trillion in fiscal 2009. At that level, FY14’s deficit would equal 3 percent of the nation’s GDP — close to the average percentage of GDP seen during the past 40 years.

The CBO also prepared baseline projections of what federal spending, revenues, and deficits would look like over the next 10 years if current laws governing federal taxes and spending remained unchanged (which hasn’t happened ever happened over the span of a decade). Still, under that assumption, the deficit is projected to decrease again in 2015 to $478 billion, or 2.6 percent of GDP. After that, deficits are projected to start rising — both in dollar terms and relative to the size of the economy — because revenues will grow at roughly the same pace as GDP but spending will increase more rapidly than GDP.

In CBO’s baseline, spending will be boosted later in the 2010s by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt. On the other hand, all federal spending apart from Social Security, major health care programs, and net interest payments is projected to drop to its lowest percentage of GDP since 1940, the earliest year for which comparable data exist.

Home Prices Plateau in December

CoreLogic reported on Tuesday that home prices nationwide, including distressed sales, increased 11 percent in December 2013 compared the same month a year ago (Case-Shiller’s most recent housing numbers, by contrast, are for the three months ending in November 2013). The change represents the 22nd consecutive monthly year-over-year increase in home prices nationally, according to CoreLogic. Excluding distressed sales (both short sales and REOs), home prices increased 9.9 percent in December year-over-year

But the upward movement of home prices has slowed, or even stopped for the time being, CoreLogic adds. Home prices nationwide, including distressed sales, decreased by 0.1 percent in December compared to November. Take distressed sales out of the equation, however, and the month-over-month change in home prices was a bit positive: up 0.2 percent.

The CoreLogic pending home price index indicates that January 2014 home prices, including distressed sales, are projected to increase 10.2 percent year-over-year from January 2013. But on a month-over-month basis, prices are expected to dip 0.8 percent from December to January.

Wall Street had a modest up day on Tuesday, taking a break for at least a day from its recent slide, with the Dow Jones Industrial Average up 72.44 points, or 0.47 percent. The S&P 500 gained 0.76 percent and the Nasdaq advanced 0.86 percent.