story by Meera Louis and Ian Katz
The government budget deficit in the U.S. for the year ended in September was the fourth-largest since World War II as lawmakers debate the impact of the looming spending cuts a month before the election.
The shortfall registered $1.09 trillion in fiscal 2012, down from $1.3 trillion in 2011, according to Treasury Department data issued today (Oct. 12) in Washington. It reached $1.42 trillion in 2009, the highest ever.
In September, the U.S. registered a surplus of $75 billion compared with a shortfall of $62.7 billion in the same month last year.
The U.S. faces a so-called fiscal cliff of $1.2 trillion in mandated spending cuts, in addition to the expiration of George W. Bush-era tax reductions, if Congress can’t agree by Dec. 31 on ways to reduce the deficit. The world’s largest economy shows signs of improvement as unemployment last month dropped to the lowest level since January 2009.
“It could have been worse,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Revenues are picking up with the recovery and the budget deficit was closer to the $1 trillion mark than the original or the midyear estimates.”
The September surplus matched the median forecast of economists surveyed by Bloomberg.
When lawmakers return to Washington in November for a post-election session, they will have only weeks to avert more than $500 billion in tax increases and $100 billion in automatic spending cuts set to take effect in January. A bipartisan group of eight U.S. senators is meeting this week to seek to identify broad areas of agreement on taxes and entitlement programs, without discussion of specific numbers or targets.
The White House budget office has said the budget cuts, known as sequestration and set to start in January, would undermine economic investment and cause “severe harm” to initiatives including food-safety inspections, air-traffic control and support for schools.
“The administration strongly believes that sequestration is bad policy, and that Congress can and should take action to avoid it by passing a comprehensive and balanced deficit reduction package,” the White House budget office report said.
Moody’s Investors Service said Sept. 11 that it may join Standard & Poor’s in downgrading the U.S.’s credit rating unless Congress next year reduces the percentage of debt-to-gross-domestic-product during budget negotiations.
Debt, equity and currency markets suggest the U.S. is more creditworthy than before Standard & Poor’s stripped the nation of its AAA grade in 2011.
Ten-year Treasury yields are down from 2.56 percent when S&P cut the U.S. one step to AA+ on Aug. 5, 2011. The yield was at 1.66% at 3:16 p.m. today and fell to 1.379% on July 25, the lowest on record.
The S&P 500 Index has jumped more than 19% since the rating cut.
Consumer confidence unexpectedly jumped in October to the highest level since before the recession began five years ago, another report today showed. The Thomson Reuters/University of Michigan preliminary sentiment index for October increased to 83.1, the highest level since September 2007, from 78.3 the prior month. The gauge was projected to fall to 78, according to the median forecast of economists surveyed by Bloomberg News.
Today’s budget report also showed revenue rose 8.9% in September from the same month a year earlier, to $262 billion. Spending dropped 38% to $187 billion from $303 billion.