July Budget Deficit Narrowed to $129.4 Billion

The budget deficit in the U.S. narrowed in July, reflecting a calendar-related reduction in spending compared with the same month last year.

The shortfall between revenue and outlays totaled $129.4 billion last month, down from $165 billion in July 2010, according to the Treasury Department’s monthly budget statement issued today in Washington. The gap for the fiscal year to date climbed to $1.1 trillion.

The inability of Congress and the Obama administration to agree on a long-term plan to tame the fiscal imbalance prompted Standard & Poor’s to cut the nation’s debt rating last week, contributing to a plunge in global stock markets. A dimming outlook for growth and employment means the U.S. government will have even more difficulty closing the shortfall in coming years.

“The jury is out on whether the government can rein in these deficits in the long run,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “When it comes to fiscal austerity, the U.S. is way behind most of the rest of the world.”

Stocks dropped on concern the economic recovery was faltering. The Standard & Poor’s 500 Index fell 1.7 percent to 1,152.62 at 2:19 p.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.17 percent from 2.25 percent late yesterday.

Survey Results

The median forecast of 25 economists surveyed by Bloomberg News projected a budget deficit of $133 billion in July. Forecasts ranged from $125 billion to $140 billion.

The Congressional Budget Office projected a shortfall of $132 billion for July. “Much of that difference occurred because there were shifts in the timing of certain payments in 2010,” the CBO said on Aug 5. Payments were pushed into July 2010 because Aug. 1 fell on a weekend last year.

As a result, spending by the government fell 10 percent in July from the same month last year to $288.4 billion.

Revenue and other fees increased 2.3 percent last month to $159.1 billion. Individual income taxes are up 24 percent so far this fiscal year to $890.7 billion. Corporate income tax receipts have climbed 0.6 percent.

The fiscal year to date deficit compares with a $1.17 trillion gap the prior fiscal year, according to the Treasury’s budget statement.

Projected Deficit

This year’s federal budget deficit is projected to reach about $1.4 trillion, according to CBO forecasts. That would match the previous record reached in fiscal 2009. In fiscal year 2010, the shortfall totaled about $1.3 trillion.

In its debt downgrade announcement on Aug. 5, S&P said the action reflected its “view that the effectiveness, stability, and predictability of American policy-making and political institutions have weakened at a time of ongoing fiscal and economic challenges.”

The budget agreement between Congress and the White House cuts $917 billion from spending over the next decade, and establishes a “super-committee” of House and Senate members charged with cutting an additional $1.2 trillion. If that panel failed to reach an agreement, a legislative mechanism would reduce spending equally in defense and domestic programs.

House Republican leaders have said that they will continue to resist the president’s calls to increase taxes to close the deficit.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at

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