The U.S. government budget deficit totaled $347 billion in May, up from a $240 billion deficit in the same month a year earlier, according to the latest Monthly Treasury Statement data. This surpassed the consensus estimate of $250 billion.

Eight months into the 2024 fiscal year, the fiscal year-to-date federal shortfall totals $1.202 trillion, compared with a deficit of $1.695 trillion in the entire fiscal year of 2023.

In May, outlays rose 22 percent to $670 billion, while revenue climbed 5 percent to $323 billion.

Medicare, at $142 billion, and Social Security, at $123 billion, were the top outlays in the month. On a fiscal year-to-date basis, Social Security costs reached $960 billion and Medicare outlays have been $607 billion.

Net interest was the third-largest budget item last month, exceeding defense spending. It totaled $87 billion in May and $601 billion in the first eight months of the current fiscal year, higher than spending on health care, defense, income security, and veterans’ benefits.

The Treasury forecasts that interest on Treasury debt securities will surpass $1.14 trillion by the end of fiscal year 2025.

Debt-servicing costs are now equal to nearly 80 percent of all personal income taxes, which totaled approximately $143 billion in May.

The 12-month rolling deficit (June 2023 to May 2024) totals $1.6 trillion, up $108 billion from the previous 12-month span. This represents a little more than 6 percent of the gross domestic product.

According to the Committee for a Responsible Federal Budget, the rolling deficit would be $2.1 trillion if the effects of student loan cancellation are removed from the numbers. Last year, the administration’s student debt forgiveness was ruled illegal.

With the federal government continuing to borrow more, “lawmakers should be feeling the pressure to bring it down,” says Maya MacGuineas, president of the non-profit public policy organization.

“With only four months left in the fiscal year, the United States has borrowed $1.2 trillion, a shocking $4.9 billion per day on average. Clearly, we need to figure out our fiscal situation soon, before things get more out of control,” Ms. MacGuineas said.

“With rising interest rates, persistent inflation, and looming trust fund insolvency, there is much more to be done to correct our fiscal path.”

The national debt stands at $34.7 trillion.

What the CBO Says

Prior to the Treasury’s official numbers, the Congressional Budget Office (CBO) published the Monthly Budget Review, reporting the fiscal year-to-date deficit.

According to the non-partisan budget watchdog, the shortfall was $38 billion higher than the deficit registered in the October to May period last fiscal year.

Federal revenues were $294 billion higher, representing a 10 percent year-over-year increase. Federal outlays were $332 billion higher, accounting for an 8 percent year-over-year jump.

Officials warn that spending this year will be “greater than previously projected,” due to “administrative actions associated with student loans and from legislation providing international assistance.”

The interest on the public debt is a sizable component of the federal budget.

In the first eight months of fiscal year 2024, interest payments have rocketed 42 percent, or $185 billion. Additionally, outlays for mandatory spending, like Social Security and Medicare, have increased by 6 percent.

Managing the Red Ink

Annualized interest payments have already surpassed $1 trillion.

The average interest rate on the debt is 3.2 percent, the highest since 2010. Moreover, with nearly $6 trillion of the national debt in Treasury bills, the average rate is 5.4 percent.

Recent Treasury borrowing estimates show the U.S. government expects to borrow $243 billion in the April to June 2024 quarter. Officials also expected to borrow $847 billion in the July to September 2024 quarter.

Treasury Secretary Janet Yellen has been auctioning short-term securities to help manage the debt and endure higher interest rates. However, more than $9 trillion of the national debt will mature in the next 12 months, meaning it will be refinanced at higher rates.

Attracting foreign and domestic investors has been a key challenge for Washington.

Since late last year, a string of weak U.S. Treasury auctions has helped bolster bond yields.

For example, the $70 billion auction of 5-year notes on May 28 was met with abysmal demand, forcing primary dealers—financial institutions required to buy leftover supply—to scoop up roughly 20 percent of the debt.
The financial markets are struggling to “digest new Treasury debt,” says Carl Tannenbaum, the chief economist at Northern Trust.

“Sustaining order requires securing investors for the tens of billions of dollars in debt which are sold every week,” Mr. Tannenbaum wrote in a May 31 note.

“This effort has gotten more challenging over the past two years, as the Federal Reserve has reduced its holdings of government bonds. Finding replacement buyers hasn’t been too problematic, but there are increasing signs of strain. The implied ’term premium’ that the Treasury pays to borrow has been increasing, contributing to higher yields.”

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