U.S. Economy This Week: Surprising Good News on the Federal Budget
Some will be shocked to hear this: the federal budget will be in surplus in 2029 if current trends keep up. That's a big "if," but it is great news nonetheless. Economic growth works!
Guest post by economist Robert Genetski, Ph.D.
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The Treasury Department’s report on federal spending, receipts, and deficits in May was very positive.
We now have four months (February through May) where President Trump’s policies have been able to impact the budget. For these four months, the deficit totaled $525
billion, down $145 billion from the same four months in 2024.
Tax receipts were up 10.7 percent from a year ago and spending was up only 1.6 percent above a year ago. If these trends continue, the current year’s spending will be a half-trillion dollars lower than the most recent CBO forecast. Moreover, if these trends continue beyond this year, the budget will be in surplus in 2029!
In sum, the Treasury report shows positive trends for spending, receipts, and the federal budget deficit. The good news on the deficit trend brought some easing in longer-term interest rates as the yield on 10-year T-Notes moved down to its 50-day moving average, and corporate yields moved below the 50-day average.
Some pressures on the economy appear to be easing. President Trump paused major tariff increases for countries negotiating in good faith. Although details are sparse, Trump offered encouraging news that the United States and China have a deal done, at least in principle. Look for additional positive tariff news in the weeks ahead.
Inflation data in May were better than expected. The Consumer Price Index for May was up only 0.1 percent for both the total and core measures. For the past six months and the past year, the inflation rates are up 2½ percent for the total and 2¾ percent for core.
May wholesale prices were mixed. Prices for finished goods in the second quarter rose at a 5 percent annual rate over the first quarter. Core prices for final demand items, however, were up at only a 1 percent annual rate.
Tomorrow, the government releases its report on May retail sales. These data are highly erratic. In the year ending in April, they were up by 5 percent, closely matching the 5 percent increase in personal income. We suspect May sales were relatively weak due to the uncertainty over tariffs and jobs.
Also on Tuesday, the June Homebuilders’ Index is likely to show an improvement from last month’s sharp drop to 34. The drop occurred in early May over Trump’s sharp increase in tariffs. With an easing in tariffs, the index should recover to
roughly 40, but still below break-even at 50.
This week’s big announcement will be Wednesday’s Federal Reserve decision on interest rates and monetary policy. The latest financial market odds are 99.8 percent that the Fed will leave its target unchanged. (That will continue the slow tightening of the money supply.—Ed.) Currently, the financial markets put a 60 percent probability on an interest rate cut in September, which seems most likely at this point.