Federal Deficit Shrinks
- May 15, 2013
The Congressional Budget Office reported on Tuesday in its “Updated Budget Projections: Fiscal Years 2013 to 2023” that the federal budget deficit will shrink in fiscal 2013 to $642 billion, the smallest shortfall since 2008. Relative to the size of the economy, which is arguably the more important measurement, at 4 percent of gross domestic product this year, the deficit will be less than half as large as in 2009, when it was 10.1 percent of GDP.
The new estimate for the deficit is a downward revision, because of increasing government revenues as the economy recovers, and because sequestration continues. Previously, the CBO projected a deficit of 5.3 percent, down from 7 percent in fiscal ‘12. Moreover, the CBO expects the deficit to fall to 2.1 percent of GDP in fiscal 2015.
After 2015, the CBO projects that the deficit will start to increase again. But at no time until 2023 does the CBO think that the deficit will be larger than 4 percent, though admittedly predicting deficits that far in the future is dicey at best. That’s roughly where the deficit stood during most of the 1980s and early ‘90s. Only in the late ‘90s was there a surplus, peaking in 2000 above 2 percent of GDP.
Consumer debt shrinking too
U.S. households are continuing to deleverage as well, according to the New York Fed’s latest Household Debt and Credit Report, which was released on Tuesday. During the first quarter of 2013, the Fed said, outstanding household debt dropped by about $110 billion from the previous quarter, with housing debt and credit-card debt both down.
During the quarter, total household indebtedness fell to $11.23 trillion, which is 1 percent lower than the previous quarter and considerably below the peak of $12.68 trillion during the third quarter of 2008, the Fed noted. Not only that, delinquency rates for each kind of household debt declined, with about 8.1 percent of outstanding debt in some stage of delinquency, compared with 8.6 percent the previous quarter.
Mortgages, the largest component of household debt, dropped in the first quarter of 2013 by $101 billion compared with the previous quarter. Balances on home equity lines of credit dropped by $11 billion, and household non-housing debt balances were roughly flat, with increases in auto and student loans, by $11 billion and $20 billion respectively, offset by decreases in credit card balances (down $19 billion) and other consumer loan balances (down $10 billion).
Small business owners more optimistic
The National Federation of Independent Business said on Tuesday that its Index of Small business Optimism was up in April by 2.6 points to 92.1, which is just above recovery average of 90.7. The organization’s index has been gyrating lately, but at least small businesses are starting to complain more about taxes than lack of demand, according to the NFIB, which is a moderately good indicator of small business health.
Wall Street had a fine spring day on Tuesday, with the Dow Jones Industrial Average gaining 123.57 points, or 0.82 percent. The S&P 500 was up 1.01 percent and the Nasdaq gained 0.69 percent.