The numbers: The U.S. ran a $208 billion deficit in May, a jump of 41% from a year ago, the Treasury Department said Wednesday.
Most of the jump can be explained by June 1 occurring on a weekend, which forced some federal payments into May. Excluding those calendar adjustments, the deficit still would have increased by 8%, with spending up by 6% and revenue up by 4%.
What’s happened: In May, the net interest on the public debt surged by 34% because the Treasury Department had to factor in the adjustment on principal for inflation-protected securities. That won’t be an issue in future months as the total inflation adjustment is actually smaller this year than last, the Congressional Budget Office noted.
What will recur are growing payments for Medicare, Social Security and defense. Medicare spending surged 73% — mostly because of the timing shift, though it would have rose 18% otherwise. Social Security benefits rose by 11% and defense spending rose 23%.
Revenue rose 7% mostly due to a rise in individual and payroll taxes, driven by rising employment, wages and hours worked. The Treasury Department notes that since March, the individual income tax numbers are comparable because similar withholding formulas have been in place.
Customs duties — tariffs, mostly — jumped 62% to $5 billion. The U.S. has increased tariffs on some $200 billion of Chinese goods to 25% and is threatening to levy that same rate on over $300 billion more if trade negotiations between U.S. President Donald Trump and Chinese President Xi Jinping are not successful.
The big picture: The U.S. might record a trillion-dollar deficit this fiscal year — it’ll be close, according to the CBO — as the spending increase is met by stagnant revenue growth. Financial markets, far from worrying about the fiscal condition, are making it cheaper and cheaper for the U.S. government to finance this spending.
The yield on the 10-year Treasury
has dropped from as high as 3.23% in November to just 2.13%.
U.S. stocks, lower on Wednesday, have nonetheless climbed this year, with the Dow Jones Industrial Average
up by 11%.