US budget deficit expected to shrink in November due to calendar quirks

MarketsAssociated Press

The Treasury Department releases federal budget data for November. The report will be issued at 2 p.m. EST Wednesday.

LOWER DEFICIT: The Congressional Budget Office is forecasting that the November deficit will be $59 billion, compared with a November deficit last year of $135.2 billion.

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TIMING SHIFTS: If forecasters are correct, it would mean a sizable 56 percent improvement over the deficit from a year ago. However, that progress basically reflects calendar quirks. A total of about $41 billion in payments that would normally have gone out in November were sent out in October because Nov. 1 fell on a Saturday this year.

In addition, spending in November a year ago was inflated by similar calendar issues which resulted in higher monthly benefit payments than usual. If all of the calendar quirks were discounted, the November deficit this year would be about $3 billion higher than the adjusted deficit from a year ago.

The 2015 budget year began in October. The CBO is estimating that the deficit for this budget year will fall to $469 billion, from $483.3 billion the previous budget year.

Congress came back after the November elections having to deal with a stop-gap funding bill that was to run out Thursday. Late Tuesday, Republicans and Democrats agreed on a $1.1 trillion spending bill that averted a government shutdown.

After this year, the CBO is forecasting that the deficits will resume rising for the rest of the decade as baby boomers retire and Social Security and Medicare costs rise. The CBO and other budget experts have warned that the current trajectory for the deficit is unsustainable and eventually could lead to a fiscal crisis.

The $483 billion deficit for 2014 was the smallest since George W. Bush's last full year as president. When measured against the size of the economy, the deficit equaled 2.8 percent of gross domestic product, below the average for the last four decades. By comparison, the deficit for 2013 was $680 billion, or 4.1 percent of GDP.

That sizable borrowing reflected deficits that topped $1 trillion annually for four consecutive years, from 2009 to 2013, as the government struggled with a deep recession, which cut into tax revenues and forced higher spending for safety-net programs such as unemployment benefits and food stamps.

The improved deficit picture for 2014 reflected slower growth in spending due to lower-than-expected health care costs as well as a 2011 budget pact with Republicans that sharply curbed agencies' operating budgets. Obama reached an agreement with Republicans in Congress for a tax increase on higher income earners at the beginning of 2013.

Since that tax increase, the GOP-controlled House and Obama have steered clear of further large-scale efforts to reduce the deficit. Instead, a budget deal last December reversed agency budget cuts known as sequestration.

But with Republicans winning control of the Senate in November's elections, they are expected to try to rein in the deficit even further. However, Obama has said that any large-scale budget deal needs to include higher taxes, something that Republicans oppose.