Economy Watch: Federal Deficit Continues to Drop

By Dees Stribling, Contributing Editor

The federal government’s budget deficit dropped sharply in the first seven months of fiscal 2014 (beginning Oct. 1, 2013), according to a report by the U.S. Department of the Treasury released on Monday. The drop reflects lower government spending, but mainly higher tax revenue because of an improving economy.

All together, the deficit from October through April totals about $306.4 billion. That’s 37 percent lower than the same period a year earlier, notes Treasury. Revenues were especially strong in April—amounting to a $106.85 billion surplus—but that’s mostly a function of the federal income tax deadline on April 15; other months tend to have deficits.

Perhaps more importantly, the deficit as a percentage of gross domestic product is also down. Separately, the Congressional Budget Office is estimating that the total deficit for fiscal 2014 will be about $492 billion, or 2.8 percent of GDP. That’s the smallest deficit in those terms since 2007.

Equities reach new highs

Wall Street was feeling good on Monday. If fact, records were set, even though the escalation of stock values hasn’t been as steep in 2014 as it was last year. Even so, the Dow Jones Industrial Average gained 112.13 points, or 0.68 percent, to end at a (nominal) record high of 16,695.47 on Monday. Monday represented a back-to-back record, since the index had previously set a record on Friday.

The S&P 500 likewise ended Monday on a record-high note. The index was up 0.97 percent for the trading day, to finishing at a record 1,896.65. That bested the last all-time nominal high of April 2, when the S&P 500 landed at 1,890.90.

The Nasdaq didn’t set a record on Monday, but was up 1.77 percent. The index used to trade higher during the dotcom bubble of the late 1990s, and has never reached those levels since.