US government deficit surges despite strong economic conditions
What the charts show
Both charts use outlays and receipts data from the US Treasury to illustrate how government revenue supports current spending. The first chart breaks down the sum of government receipts over the past 12 months. It also highlights the $1.83 trillion deficit – the gap between revenue and spending.
The second chart builds on this, showing the 12-month rolling sum of receipts as a percentage of total spending and how the composition of these receipts has evolved over time.
Behind the data
Over the past year, the US government has spent $6.75 trillion but only collected $4.92 trillion in revenues, leaving a $1.83 trillion shortfall. This deficit, accounting for 27% of all government spending, is financed through the issuance of Treasury securities, effectively borrowing to cover the gap.
Such hefty deficit spending raises concerns about sustainability, especially given the current economic environment. The US economy is experiencing solid GDP growth, a healthy labor market and cooling inflation – conditions typically associated with lower deficit spending. However, the fact that the deficit remains so large during a period of relative economic strength suggests that it could balloon even further during the next downturn or recession. Without significant adjustments to revenue or spending, the government’s reliance on borrowing is likely to increase, adding further pressure to fiscal sustainability.
China’s credit may struggle to fuel growth
What the chart shows
The chart tracks China’s credit impulse (a measure of new credit as a share of GDP) offset by three months to align with the Li Keqiang Index, which measures total bank loans, electricity consumption and rail cargo volume. This reflects the strong five-year rolling correlation between the two measures.
Behind the data
China has rolled out fiscal measures, including bond issuances worth 6 trillion yuan ($850 billion), following earlier monetary steps. This move is expected to inject liquidity into the economy, possibly pushing the credit impulse into positive territory and spurring economic activity. However, with economists voicing doubts about the country meeting its 5% GDP growth target as we enter Q4 2024, the effectiveness of these measures remains in question.
Modest decline in US mortgage rates challenges expectations of housing market boom
What the chart shows
This chart shows consensus forecasts from Blue Chip Economics for the average US mortgage rate over the next six quarters. The blue line represents the mean forecast for each quarter. The grey box highlights the 25th to 75th percentile range, while the green box represents the 10th to 90th percentile range.
Behind the data
Even though the Federal Reserve (Fed) is expected to continue cutting interest rates over the coming quarters, US mortgage rates are projected to decline much more modestly. This is likely because the anticipated Fed Funds rate cuts have already been largely priced into current mortgage rates. As a result, the average mortgage rate is expected to decrease by only 34 basis points from now until the end of Q1 2026.
This forecast contradicts a common narrative in the US housing market, which suggests that decreasing interest rates will spark a new boom in mortgage demand. However, if mortgage rates do not drop significantly, this demand may not materialize as expected.