Federal Deficit

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses the federal deficit and interest rates.

  • In today’s data from the Treasury Department, the federal deficit is shrinking a bit, with revenue up and spending down this November, compared to November of last year.  Economic growth, though modest, and some job creation is leading to more revenue and a lessened need to spend on social programs.
  • $152 billion was collected by the Treasury in November, but the overall spending was about twice as high at $290 billion.  The monthly deficit was therefore $137 billion.  This time last year, revenue was $149 billion, while spending totaled $299 billion.
  • During the first two months of the new fiscal year (October and November), the deficit has shrunk by 20 percent to $235 billion versus $291 billion in the same period one year ago.
  • Even though reduction in the deficit is progress, the overall level of government borrowing is exceptionally high.  To spend about twice the amount of tax receipts collected is clearly not sustainable.
  • Because of the lack of borrowing demand in the private sector (many companies are flush with cash and have no need to borrow), high government borrowing has not pushed up interest rates.  Also many foreign investors and governments have readily supplied funds for the U.S. government to borrow at cheap rates.
  • At some point in future, interest rates will be less favorable if the deficit persists.  The only way to borrow would be for the U.S. government to offer higher interest rates.  That will also mean higher mortgage rates for consumers in the future.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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