U.S. Budget Gap Widens on Spending as Benefit Payment Shifts

The U.S. government’s budget deficit widened more than forecast in August, reflecting an acceleration in spending as some benefit payments were made earlier because of the Labor Day holiday.

The deficit climbed 42 percent to $190.5 billion from a $134.1 billion shortfall in August 2011, the Treasury Department said today in Washington. The gap exceeded the $170 billion median estimate in a Bloomberg survey. Through 11 months of this fiscal year, the deficit was 5.6 percent smaller than the same period last year.

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. Congressional leaders have said they probably will wait until after the Nov. 6 presidential election to address the George W. Bush-era tax cuts set to expire Dec. 31 and the looming $1.2 trillion in automatic spending cuts.

“First S&P, and now Moody’s is threatening to lower the boom if Congress does not come up with a credible plan to bring down what the rating agencies think is reckless deficit spending with no end in sight,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an e- mail before today’s report. “It looks like Congress really has their work cut out for them.”

CBO Outlook

The Congressional Budget Office has said the economy will probably tip into recession if Congress doesn’t resolve the impasse by early next year. Moody’s put the rating under review with a negative outlook in August 2011, when the U.S. pushed back a decision on spending and raised the debt ceiling after months of political wrangling.

Treasuries have returned 6 percent since the U.S. was stripped of its AAA rating by S&P on Aug. 5, 2011, according to Bank of America Merrill Lynch index data as of Sept. 12, while yields have sunk to all-time lows. The rally in the past year may reflect investors seeking a “haven” from Europe’s debt crisis and demand for liquid securities, S&P said.

Today’s report showed revenue rose 5.7 percent in August from the same month a year earlier, to $178.9 billion from $169.2 billion. Spending jumped 21.8 percent to $369.4 billion from $303.4 billion. Treasury said payment shifts resulted from $57 billion in monthly recurring benefit payments being accelerated into August from September.

Estimates of the August budget gap ranged from $192 billion to $95 billion in the Bloomberg survey of 23 economists.

Deficit Narrowing

Through 11 months of the fiscal year that began in October 2011, the budget deficit narrowed to $1.16 trillion from $1.23 trillion in the same period last year.

The Congressional Budget Office estimated this week the August deficit would be $192 billion. The CBO said in a report dated Sept. 10 that the deficit was affected by the Labor Day weekend.

“Consequently, certain payments that are ordinarily made at the beginning of each month -- including Social Security benefits -- were shifted from September to August, boosting spending last month,” the report said.

To contact the reporters on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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