Both spending and tax receipts put in double-digit performances to produce a US ten-digit deficit (actually $1.1 trillion) for the first nine months of the fiscal year and broke a monthly record of $94 billion in June. Spending came in at +20% compared to over a year ago and receipts were down 18%. No doubt where this train is going, said John Sylvia, chief economist of Wells Fargo Securities. His additional comments follow below.
Spending: Entitlement spending leads the way
- Medicare, Social Security and Income Security all recorded double-digit gains in spending compared to a year ago. Such percentage increases are large even for a recession where these categories represent automatic stabilizers.
- Total outlays have soared as a percentage of nominal GDP. The government's command of economic resources is at a new high.
Revenues: Weakness reflects recession pattern
- Both individual and corporate income tax revenues have fallen at double- digit rates compared to a year ago.
The Federal deficit is now at a post-WWII high and is likely to continue to rise in the near term as deficits rise and the economy remains weak. These deficits will influence the allocation of global savings for the foreseeable future.
Source: John Sylvia, Wells Fargo Securities, July 13, 2009.
The chart below comes courtesy of Jake of EconomPic Data, showing the rolling twelve month change in receipts, as well as outlays, and the variance between the two. An inexact formula? Yes, but it puts this all in perspective. What this shows is a massive spike in spending AND a massive cliff dive in receipts, said Jake.
Source: EconomPic Data, July 13, 2009.