Economy Watch: Federal Deficit Continues to Shrink

By Dees Stribling, Contributing Editor

The Congressional Budget Office estimated on Wednesday that the federal budget deficit for the fiscal year of 2014 (which ends Sept. 30) will amount to $506 billion, or about $170 billion lower than the shortfall in 2013. At 2.9 percent of gross domestic product (GDP), the FY 2014 deficit will be much smaller than those of recent years—reaching almost 10 percent of GDP in 2009—and slightly below the average of federal deficits over the past 40 years.

The CBO projects the federal budget deficit will continue to shrink in 2015, and will be less than 3 percent of GDP each FY until fiscal 2019 at least. After that—assuming no policy changes are made in the next six years—the deficit will slowly increase each year.

The agency also significantly lowered its projection of real U.S. GDP growth for 2014, reflecting then unexpected economic weakness of the first half of the year. However, real GDP over most of the coming decade is projected to be only modestly lower than the CBO estimated in February. Also, the CBO now anticipates lower interest rates throughout the projection period and a lower unemployment rate for the next six years.

Freddie Mac delinquencies still dropping

Freddie Mac said on Wednesday that the serious delinquency rate for single-family mortgages that it owns or guarantees declined from 2.07 percent in June to 2.02 percent in July. Freddie’s rate is down from 2.7 percent in July 2013, and at its lowest level since January 2009. The GSE’s serious delinquency rate peaked in February 2010 at 4.2 percent.

According to Freddie, seriously delinquent mortgage loans are “three monthly payments or more past due or in foreclosure.” At the current pace of improvement, the serious delinquency rate for the GSE will not be below 1 percent—which is the historical norm—until sometime in early 2016.

Freddie Mac also released its newly updated Multi-Indicator Market Index (MiMi) on Wednesday, which shows the U.S. housing market continuing to plod along. Most local markets are still generally weak, though those with stronger local economies and favorable demographics continue to improve at a much stronger pace. The national MiMi value stands at 73.7, indicating a weak housing market overall with only a slight improvement (0.04 percent) from May to June and a three-month positive trend change of (0.16 percent). On a year-over-year basis, the MiMi has improved by 7.67 percent.

Wall Street had an active day on Wednesday, but in the end the markets went nowhere fast. The Dow Jones Industrial Average eked out a 15.31-point gain, or 0.09 percent. The S&P 500 essentially broke event (still at a record high), but the Nasdaq edged downward by 0.02 percent.