U.S. Markets close in 23 mins
  • S&P 500

    +64.23 (+1.53%)
  • Dow 30

    +353.92 (+1.06%)
  • Nasdaq

    +251.26 (+1.97%)
  • Russell 2000

    +37.33 (+1.89%)
  • Crude Oil

    -2.57 (-2.72%)
  • Gold

    +9.80 (+0.54%)
  • Silver

    +0.41 (+2.02%)

    -0.0058 (-0.5647%)
  • 10-Yr Bond

    -0.0390 (-1.35%)
  • Vix

    -0.78 (-3.86%)

    -0.0064 (-0.5244%)

    +0.4640 (+0.3489%)

    +34.18 (+0.14%)
  • CMC Crypto 200

    +5.04 (+0.88%)
  • FTSE 100

    +34.98 (+0.47%)
  • Nikkei 225

    +727.65 (+2.62%)

Don’t Look Now, but the Deficit Is Shrinking!

Don't look now, but the deficit is shrinking. A little.

Take a look at the December Monthly Treasury Statement. It tallies how much money the government collects and spends each month. Comparing a single month from the current fiscal year, which started in October 2011, to the previous fiscal year, can be complicated. A payment of taxes or benefits and wages on the last day of the month one year and on the first day of the month the next year can make for volatile year-to-year comparisons. But as the fiscal year goes on, these wrinkles tend to be smoothed out.

So, in the first three months of fiscal 2012 — October, November, and December — revenues were $555.4 billion, up 4.3 percent from $532 billion in the first three months of fiscal 2011. Spending in the first three months of fiscal 2012 has come in at $877 billion, down from $901 billion in the first three months of fiscal 2011, down 3.3 percent. Add it up, and the deficit so far this fiscal year is running at $321 billion, compared with $369 billion for the first three months of fiscal 2011. That's a decrease of 13 percent.

This shrinkage isn't particularly surprising. Deficits and budgets are procyclical. When the economy slows down, budgets get hit with a double whammy: tax revenues fall, and spending on automatic stabilizers like unemployment benefits and food stamps rises. Boom. Massive deficits materialize out of nowhere. But when the economy expands and more people are working and corporate profits rise, then tax receipts tend to go up, and the demand for government income support services tends to go down. For example, Thursday morning the Department of Labor reported that first time unemployment claims were 352,000, down sharply from 415,000 a year ago. On December 31, 2011, 7.8 million Americans claimed unemployment benefits under all programs; that's down from 9.65 million in the last week of 2010.

So, yes, it's pathetic and distressing that in an era of trillion-dollar deficits, there's no appetite in Washington for a large-scale deficit reduction deal. And we shouldn't hold out hope that the next iteration of the Simpson-Bowles Commission, or the Supercommittee, or the Double-Secret-Group-to-Save-America will come up with a large deficit reduction package that is acceptable to Democrats and Republicans. In the meantime, however, growth will perform some of the lifting that is proving too heavy for our political system.

But we shouldn't get too excited. If these trends hold up for the next nine months, and the fiscal 2011 deficit falls 13 percent, that would mean the fiscal 2012 deficit would come in at $1.13 trillion. That's still massive. On the other hand, think of the contortions and drama Washington would have to go through to get $170 billion of deficit reduction before Election Day.

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com