Submitted by Econbrowser

Reader CoRev, in commenting on this post, advises me to look at the actual data for October (instead of the CBO estimate) before declaring a trend deterioration in the budget balance. Well, the data are out.

Here’s what the deficit looks like, using Treasury’s Monthly Treasury Statement data for October, and historical data.

Figure 1: Twelve month moving average of budget balance divided by nominal GDP (blue, left scale) and in billions of nominal dollars (red, right scale). Budget balance (on balance sheet and off balance sheet), as recorded by Treasury (October statement), divided by GDP interpolated using quadratic match. October GDP assumes 5% nominal GDP growth, in line 1.4% real GDP growth and 3.6% inflation in 2007Q4 (see WSJ survey). NBER-defined recessions shaded gray. Sources: Treasury’s Monthly Treasury Statement data for October, and historical data, BEA October 31 GDP release, NBER, and author’s calculations.

It turns out that the $55.6 billion deficit is not that different from the CBO’s estimate of $59 billion. But it is the trend that is of greatest interest to me.

In addition, nominal receipts are slowing their ascent, while as a share of GDP, they have clearly plateaued.

Figure 2: Twelve month moving average of receipts divided by nominal GDP (blue, left scale) and in billions of nominal dollars (red, right scale). Receipts (on balance sheet and off balance sheet), as recorded by Treasury (October statement), divided by GDP interpolated using quadratic match. October GDP assumes 5% nominal GDP growth, in line 1.4% real GDP growth and 3.6% inflation in 2007Q4 (see WSJ survey). NBER-defined recessions shaded gray. Sources: Treasury’s Monthly Treasury Statement data for October, and historical data, BEA October 31 GDP release, NBER, and author’s calculations.

Seems to me a fair bet that, given current estimates for a slowdown to around 1.4% GDP growth SAAR in 2007Q4 (see this post), receipts will fall as a share of GDP.

Hence, I stick with the conclusion from my previous post on this subject: A balanced budget is far off.

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