The US budget balance was in a surplus of $156.7 billion for April 2015. This was the highest surplus since April 2008. In March 2015, the budget balance was in a deficit of $52.9 billion. A year ago, the budget was in a surplus of $106.8 billion. These surplus-deficit figures are released by the U.S. Treasury in its Monthly Treasury Statement (or MTS). The MTS gives an overview of the financial activities of the federal government and off-budget federal entities.
The MTS provides information on the government’s receipts and outlays, surplus or deficit, and the means of financing. A surplus occurs when the government’s receipts are more than its outlays.
Why is this important?
Knowing the budget balance is important because a large budget deficit increases the national debt. This means a higher percentage of the country’s income must be used for interest payments on the debt.
The budget deficit for fiscal year ended September 2014 was $483.6 billion, or 2.8% of the gross domestic product (or GDP). A fiscal year for the U.S. Treasury begins in October and runs through September of the next year. In 2009, the budget deficit ran up to nearly 10% of the GDP.
For fiscal year 2015, the Congressional Budget Office expects the deficit to reduce to 2.7% of the GDP, or $486 billion, according to a release in March. This projected number is higher than the estimate for January of $468 billion. So far this fiscal year, the budget balance is in deficit to the tune of $282.8 billion.
Details of the budget balance
In April, the budget balance reports a surplus due to a surge in tax receipts. The highest receipts of $288.2 billion in April came from individual income taxes. That made up a significant portion of the government’s total receipts worth $471.8 billion. The highest budget outlays were for the Department of Health and Human Services, at $83.5 billion. It was followed by the Social Security Administration at $78.7 billion.
Unlike some economic releases, there’s no direct impact of a budget deficit on companies or ETFs. However, an increase in the budget deficit over a period of time signals worsening government finances, which is not good for the economy. Last month’s report was very positive for the government’s financial position. It could help reduce the deficit for the financial year ending September 2015.
Over the long run, government finances impact equity markets. This affects broad-based equity ETFs like the SPDR S&P 500 ETF (SPY), the SPDR Dow Jones Industrial Average ETF (DIA), and the iShares Core S&P 500 (IVV). DIA’s top three holdings are Visa (V), Goldman Sachs (GS), and 3M (MMM), which make up ~22% of the ETF. Fixed income ETFs like the iShares Barclays 20+ Year Treasury Bond Fund (TLT) and the iShares Barclays 7-10 Year Treasury Bond Fund (IEF) also track this report.
In the next article, we’ll look at the status of industrial production in April 2015.