COTW: Rising Deficit at Odds with Strong Labor Market

COTW: Rising Deficit at Odds with Strong Labor Market

Last Friday, the U.S. Treasury announced the budget deficit for the fiscal year ending September 30. At $984 billion, the deficit represents approximately 4.7% of U.S. gross domestic product (estimated at over $21 trillion), one of the higher readings of the last few decades. This nearly trillion-dollar budget shortfall is 26% higher than last fiscal year as recent government spending has far outstripped revenues. Overlaying the deficit as a percentage of GDP with the unemployment rate as a proxy for the strength of the economy, we can see how unusual such a high deficit is in the context of an economic expansion and healthy labor market. Not only are imbalances in the U.S. economy growing, but they are doing so at a time when they should be declining.

 

The chart below can be downloaded here.

 

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