The Federal Government ran a deficit last month of $240B. Revenue continues to be at or below levels last year while expenses continue to grow.

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Figure: 1 Monthly Federal Budget

The chart below shows the month of May historically. This is the second largest May deficit ever, falling only behind May 2020 during the peak of the Covid stimulus. As the chart below shows, revenues have dropped significantly YoY since the peak in 2021. At the same time, expenses dropped last year but have bounced back this year.

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Figure: 2 Historical Deficit/Surplus for May

Looking over the ten years before Covid, the May deficit averaged $116B which is less than half the amount this year.

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Figure: 3 Current vs Historical

The Sankey diagram below shows the distribution of spending and revenue. The deficit represented almost 44% of total expenses.

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Figure: 4 Monthly Federal Budget Sankey

This is greater than the distribution over the TTM which represents 32% of expenses. This means the budget deficit is clearly getting worse in a hurry.

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Figure: 5 TTM Federal Budget Sankey

The revenue this year has been shrinking on average when looking over the last three years.

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Figure: 6 Monthly Receipts

At the same time, expenses continue at elevated levels.

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Figure: 7 Monthly Outlays

One expense that continues to be a major issue for the Treasury is Net Interest Expense. The chart below shows how it has changed over the last several years. In the latest month, it clocked in just below $600B. This is up from $350B at the start of 2022, less than 18 months ago. The government has added an extra $250B in expenses per year on just debt service.

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Figure: 8 TTM Interest Expense

The table below goes deeper into the numbers of each category. The key takeaways from the charts and table:

Outlays

• • Almost all spending categories increased YoY except for Other and Education.
    • • On a TTM basis, all expenses have increased except for Income Security. The increase has been double digits for 6 categories.
  • Net Interest is up 8.2% YoY and up 39% on a TTM basis

Receipts

• Individual Income Taxes fell an incredible 38.1%% YoY
  • • A more discouraging trend (or encouraging if you are a taxpayer) is that Individual Tax Revenues were down on a TTM basis by 15.5%.
• Social Security taxes were up 14.5% on a TTM basis which definitely is hurting the middle class and further evidence of the bite inflation is taking

Total

• On a TTM basis – Outlays were up 11.5% with Receipts down 6.2%.
  • • This caused the TTM deficit to surge an incredible $980B or 86.3%!
    • The TTM deficit now exceeds $2.1T

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Figure: 9 US Budget Detail
 

Historical Perspective

Zooming out and looking over the history of the budget back to 1980 shows a complete picture. Both spending and revenue saw a big jump right at the beginning of Covid. Spending saw a retrenchment but has since reversed and started growing again. On the other side, revenue was flat for months but has been dropping in recent months. This means that the recent tax windfalls that helped buffer the increase in spending have now waned as evidenced by the $2.1T TTM deficit.

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Figure: 10 Trailing 12 Months (TTM)

The next two charts zoom in on the recent periods to show the change when compared to pre-Covid.

As shown below, total Receipts have surged higher in the wake of the pandemic but have since come down.

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Figure: 11 Annual Federal Receipts

On the other side, expenditures surged earlier in the pandemic, dropped down some, but have now exceeded $6.6T.

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Figure: 12 Annual Federal Expenses

The view below shows the deficit as a percentage of GDP. As seen, the deficit spiked in response to Covid, retraced, but is now heading back up rapidly. The relative deficit is still below the 2009 level, but the 10% in 2009 was in the midst of the Great Recession. We are now at 8% and the meat of the current recession lies ahead. As tax revenues continue to fall, or at best flat-line, expenses are likely to surge. This will happen as GDP falls, expenses increase, and revenue falls. This is the perfect storm that will blast the relative deficit to new all-time highs.

Note: GDP Axis is set to log scale

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Figure: 13 TTM vs GDP

Finally, to compare the calendar year with previous calendar years (not fiscal budget years), the plot below shows the YTD numbers historically. The current year’s expenses trail only the Covid stimulus years in 2020 and 2021.

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Figure: 14 Year to Date
 

Wrapping Up

Two trillion dollars! This is not an emergency, a major recession, or some other extraordinary event. The TTM deficit in normal times is over $2T! There is not much else to say. This is unsustainable and completely out of control. The Fed has no options but to monetize the debt. They are on pause as long as they can be.

Prepare in advance for the pivot. The math is pretty simple and it should be clear to anyone that the pivot is coming. They have no other viable option.

Data Source: Monthly Treasury Statement

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