June 2018 Treasury Budget

America’s fiscal shortfall improved in June 2018 according to the Treasury Department.  America’s budget deficit improved to $74.9 billion from $146.8 billion in May.  Details within the report make the improvement look even better as there were substantial outlays that are not paid every month in this iteration. 

Calendar effects hurt June’s tally.  Since July 1, 2018 fell on a non-business day, payments to military active duty and retirement, Veteran’s benefits, Supplemental Social Security Income, and Medicare Payments to Health Maintenance Organizations, and prescription drug plans were accelerated into June, exacerbating the shortfall.  This will help keep July’s tally lower when the report is released next month.

In addition to the calendar, a large interest payment negatively impacted the Federal Budget in June.  Twice a year the interest payments are made to the holders of a special class of government securities.  This remuneration pushed the monthly interest costs to over 2.5 times more than in May 2018.  Year-to-date, gross interest payments have cost taxpayers $413.7 billion, an increase of over 10.1 percent from $375.6 billion in the same period last year.

On the revenue side of the report, one line-item in particular caught Atlas’ attention: customs duties.  Year-to-date, it is up 12.2 percent or $3.1 billion.  Admittedly, headlines are making it more interesting.  This is where tariff revenues show up.  If American involved global trade-skirmishes intensify, this mostly ignored data point could become more important.  One thing we do not want to witness is this item falling while barriers to trade heighten because it would signify less international trade is occurring, possibly hastening the next global downturn, but we are not there yet.

Despite several reasons to worsen (i.e., numerous accelerated payments and large interest outlays), the monthly deficit improved in June. This is partially due to rising tax receipts which have been boosted by the improving economy.  Nonetheless, the year-to-date deficit is intensifying, and rising interest payments are crowding out services provided by the government.  Whether or not this is sustainable is up for debate, but Atlas tends to feel growing debts cannot go on forever unless America’s gross domestic product is accelerating faster than its obligations accumulate.