The US fiscal deficit narrowed in August, but the fiscal gap for the current fiscal year reached a high of $1.97 trillion
The U.S. fiscal deficit on its books narrowed in August, but it was only a short-term illusion caused by the adjustment of welfare payment dates. The total deficit for the first 11 months of the current fiscal year has not changed.
The monthly deficit is down due to an accounting timing issue.
The U.S. Treasury Department stated that the recorded deficit for August was $167 billion, representing a reduction of more than half compared to the same period last year. However, Treasury officials noted that this figure does not indicate fiscal improvement. The key reason lies in the payment times of large welfare funds such as social security and healthcare. August 1st was a Saturday, and the welfare funds originally scheduled to be distributed at the beginning of the month were moved forward to July for payment. This expenditure was excluded from the August accounts, reducing the monthly spend.
If this cross-month payment item is reinstated, the actual deficit for August will rise to $248 billion, up $7 billion from the same period last year. The improvement of the accounting figures is only a change in the accounting time and it does not mean that the structure of revenue and expenditure of the government has been optimized. Looking at the cumulative figures, as of August, the deficit for the first 11 months of this fiscal year reached $1.97 trillion, exceeding the deficit level of $1.775 trillion in the previous full fiscal year.
Spending interest rates have fallen and income has edged up a little.
In August, the total federal government expenditure was $527 billion, down 24% year-on-year. Interest expense on debt fell $14 billion that month. Treasury officials said the decline in interest rates was tied to accounting adjustments from inflation amortization and did not reflect a decline in long-term debt repayment pressure. The interest expense for the entire fiscal year up to November was $143 billion more than last year, representing a 13% increase.
The U.S. federal debt is huge, and due to the high interest rates in the past period, interest has become a significant fixed expense in the federal budget. An increase in interest expenses will squeeze the fiscal budget and push up the deficit level in the long term. On the income side, federal government revenue increased slightly in August, with a revenue of $360 billion that month, an increase of 5%.
Customs tariff revenue is a very notable item in the income changes. In August, the net inflow of customs revenue was $12.84 billion, the first positive growth since April. The total amount of tariff rebates in July was as high as $33.38 billion, while the rebate scale in August contracted to $10.54 billion, a decrease in rebate scale. This is related to the previous Supreme Court ruling on the legality of tariffs.
The Supreme Court ruled that the tariffs were illegal.
In February this year, the U.S. Supreme Court made a ruling. The tariffs imposed by the Trump administration lacked corresponding legal authorization. After the ruling was implemented, the government was required to refund the relevant taxes that had already been collected to the importers. Later, the White House changed the legal basis and continued to impose tariffs, trying to stabilize the source of customs revenue. The Treasury Department collected tariffs totaling $292.5 billion, and has processed refunds of $125.2 billion. After deducting the refunds, the net revenue of the customs was $167.3 billion.
The potential impact of fiscal deficits on the U.S. treasury market.
Fiscal deficit data is a key indicator that U.S. treasuries investors closely monitor. The market will use the size of the deficit to predict the total amount of treasuries to be issued in the future. If the fiscal gap remains high, the Treasury Department will need to issue more government bonds to raise funds. An increase in treasury supply is likely to push up U.S. treasury yields. This August's data is prone to causing short-term misjudgments. Once the market understands the impact of calendar adjustments and adds that the cumulative deficit still amounts to $1.97 trillion, market expectations will quickly be corrected.
Social security and healthcare expenditures, which are mandatory welfare expenditures, are rigid fiscal expenditures of the federal government and the underlying reason for the persistent high U.S. deficits. In terms of fiscal revenue, the growth rate of taxes is limited. The expenditure is rigid and the income is unstable. These two factors make it difficult for the fiscal deficit to be narrowed quickly. This fiscal year only has the last month left, and September is usually a month when enterprises pay taxes in bulk, often resulting in a fiscal surplus. Even if there is a surplus in September, the huge gap accumulated in the first 11 months is difficult to be wiped out all at once.