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The numbers: The U.S. federal budget deficit narrowed sharply to $174 billion in June from a record $864 billion in the same month last year, the Treasury Department said Tuesday. That’s an improvement of $690 billion or 80%.
Stepping back, for the first nine months of the fiscal year, the deficit narrowed to $2.2 trillion, down from a $2.7 trillion deficit over the same period last year.
What happened: In June, revenues were substantially higher than in the prior year, mainly because the deadline for households and businesses to pay taxes was deferred until July last year. This year, taxes were due in May.
Outlays were also much lower this year than during the worst of the pandemic. Last June, the Small Business Administration, which ran the Paycheck Protection Program, had outlays of more than $500 billion. This year, the SBA spent $31 billion.
Big picture: Despite being whipsawed by the timing of outlays and tax deadlines, the budget deficit is on track to be the second largest since 1945, according to the Congressional Budget Office. The agency predicts the deficit will reach $3 trillion this year, down only slightly from $3.1 trillion last year.
Fed Chairman Jerome Powell has said the trend in government spending is not sustainable but has said that Congress should not move to reign in spending until the economy has fully recovered from the pandemic.
Market reaction: The 10-year Treasury yield
TMUBMUSD10Y,
moved higher on Tuesday afternoon but remained well below its peak of 1.75% from the end of March.
