US July Budget Deficit Rises to $77 Billion

The federal government racked up a $76.9 billion deficit in July, with increased government spending and tax cuts keeping the country on track to record its biggest annual deficit in six years.

The treasury department reported Friday that in the first 10 months of this budget year, the deficit totaled $684 billion, up 20.8% from the same period last year, AP reported.

Revenues are up only 1% this year, the increase held back by a big drop in corporate tax payments. Spending is up 4.4%, reflecting a big boost congress approved earlier this year for domestic and military programs and the rising costs of financing the debt.

The Trump administration last month sharply revised upward its deficit estimates, projecting annual deficits will once again top $1 trillion next year.

For the current budget year, which ends Sept. 30, the administration is now projecting a deficit of $890 billion. That would be up 33.7% from last year’s deficit of $665.8 billion.

The administration’s July estimates project that the deficit will top $1 trillion in 2019, climbing to $1.1 trillion that year, and remaining above $1 trillion for three years.

The only other period when the federal government ran deficits above $1 trillion was for four years from 2009 through 2011. That’s when the Obama administration was using tax cuts and increased spending, along with support for the banking system, to combat the 2008 financial crisis and Great Recession, the worst economic downturn since the Great Depression of the 1930s.

Trump succeeded in getting congress in December to pass a tax cut of $1.5 trillion over the next decade, fulfilling a longtime Republican goal of cutting the corporate tax rate.

Inflation at Six-Year High

Rising prices have erased US workers' meager wage gains, the latest sign of strong economic growth has not translated into greater prosperity for most middle- and working-class Americans.

Cost of living was up 2.9% from July 2017 to July 2018, the Labor Department reported Friday, an inflation rate that outstripped a 2.7% increase in wages over the same period. The average US "real wage," a federal measure of pay that takes inflation into account, fell to $10.76 an hour last month, 2 cents down from where it was a year ago.

The stagnant pay comes despite accelerating US growth, which has increased in the past year and topped 4% in the second quarter of 2018—the highest rate since mid-2014.

The lack of raises have befuddled economists and policymakers, who hoped that after job openings hit record highs and the unemployment rate dipped to the lowest level in decades, employers would give beefy raises to attract and retain employees. But so far, gains have been slight, and small recent increases are now being eclipsed by rising prices.

Energy Costs Rise

Inflation hit a six-year high this summer, driven in part by a jump in energy costs. The price of a gallon of gas has increased 50 cents in the past year, up to a national average of $2.87, according to AAA. Some analysts expect the climb in energy prices to halt soon, which should bring the overall inflation rate down as well and possibly lift real wages slightly.

Consumers are also paying more for housing, health care and car insurance, the federal government reported Friday. Additional price hikes could be coming as President Donald Trump's new tariffs boost prices of cheap imported products US consumers rely on. And many economists warn that growth might have peaked for this expansion.

The combination of rising prices and stagnant wages poses a problem for Trump, who campaigned on promises of jobs and raises for the working-class Americans he called "the forgotten men and women of our country". But delivering prosperity for those workers has proven difficult for Trump, as it was for former presidents Barack Obama and George W. Bush.

Trump's top economic advisers argue that it's unwise to focus too much on one measure of wage growth. Other metrics have shown stronger pay gains. The Atlanta Federal Reserve's wage tracker, which does not take inflation into account, is showing 3.2% wage growth over the past year, and White House officials promise further gains are coming soon.

Workers as a whole are getting a smaller share of the gains than they did the past. In the last boom era of the late 1990s, labor was getting more than 82% of corporate-sector income, according to left-leaning Economic Policy Institute. Today it's under 77%.