U.S. Fiscal report for December 2018

Transcription

1 Contacts Felix Boni Chief Credit Officer Jordy Juvera Economics Associate Cynthia Pérez Economics Analyst HR Ratings comments on the significant increase in US financial deficit in nominal terms and as percentage of GDP, which was mainly driven by greater outlays in Medicare, defense and interest expenses. During the first three months of FY19 the Federal Government s deficit continued to rise, sharply driven in no small way by the inexorable advance in interest expense. Over the last twelve months (LTM) the deficit reached an estimated 4.26% of GDP through 4Q (see Table 2 below). Furthermore, given off-budget items, the total increase in the Treasury s publicly held debt rose by 6.28% of GDP. As a result, the public debt as of December reached 78.6% of gross domestic product vs. the 76% a year earlier. In Table 1 below we show the breakdown of receipts and outlays by major categories. Despite the robust economy, and due to tax changes, corporate tax receipts declined 14.4% while total receipts rose by a mere 0.22%. In contrast, primary outlays (i.e., excluding net interest costs) increased 8.8% and net interest advanced a strong 18.6%. Table 1: Federal Government Budget Report (US$ billions) FY up to December In Month of * % Change % Change Total Receipts % % Individual Income Taxes % % Corporate Income Taxes % % Payroll Taxes % % Other % % Total Outlays , % % Social Security % % Medicare % % Medicaid % % Defense % % Other % % Total Primary spending % % Net Interest % % Primary Balance % % Financial Balance % % Source: HR Ratings based on data from Monthly Treasury Statement (MTS) using revenue and spending catgegories show n in the CBO's Monthly Budget Review. *Data based on change in cumulative amounts derived from current and previous MTS. As seen in Table 2, the LTM deficit reached 4.26% of GDP, larger than the 3.49% for the same period through December Furthermore, it is important to note that the public debt may increase by more or less than the deficit due to off-budget items. Over the last twelve months the effect has been to increase the debt by more than the deficit, adding an amount equal to approximately 2% of GDP. The sharp rise in net interest expense is related not only to the rise in the debt but also due to the increase in the effective average cost of the debt as the FED gradually returns interest rates to more normal levels. The expected slowdown in the rate of normalization during 2019, combined with bond yields having receded from the highs reached in early November (from roughly 3.25% to 2.67% as of this writing) may eventually cause the effective interest cost to cease its upward path. Hoja 1 de 6

2 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 In order to place the size of the deficit relative to GDP and its impact on the debt to GDP ratio in context, it is useful to note the increase of GDP in nominal terms. We estimate that nominal GDP over the last four quarters through 4Q18 increased by roughly 5.15%. This is larger than the deficit but smaller than the increase in the debt due to off-budget items. Table 2: Federal Government LTM Budget Metrics Sep-18 LTM Financial Deficit (US$ bilions) LTM Deficit as % of LTM GDP* 3.49% 3.85% 4.26% Publicly Held Debt (US$ billions) 14,815 15,761 16,102 Debt as % of LTM GDP* 76.0% 77.9% 78.6% Additional change in debt.** LTM Chg. in Debt as % of LTM GDP 1.95% 5.38% 6.28% Average effective cost of debt 1.89% 2.13% 2.20% Estimated LTM GDP (US$ billions) 19,485 20,236 20,492 Source: HR Ratings w ith information from the Treasury Department and the Bureau of Economic Analysis (for quarterly GDP data). Fiscal Year from October through September. *Includes HR Ratings estmate for 4Q18 GDP. **Change in publicly held debt beyond deficit in LTM period. In Graph 1 we show the sustained increase in Federal Government outlays beginning roughly in For their part, revenues continued to advance from their 2008 recession lows. However, the pace of increase began sharply to diminish beginning approximately in Indeed, over the last few quarters LTM revenue has actually declined marginally. Graph 1: Federal Government Total Receipts and Outlays in Billions (LTM) 4,400 Total Receipts Total Outlays 4,150 3,900 3,650 3,400 3,150 2,900 2,650 2,400 2,150 1,900 Source: HR Ratings w ith US Treasury data. In Table 2 we show the size of the deficit (in terms of its relationship to GDP) compared to the overall increase in the publicly held debt, both on a twelve-month moving average basis. With the exception of a short period during 2017 the debt has tended to increase by more Hoja 2 de 6

3 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 than the deficit itself. In general, these off-budget items tend to increase the debt by more than the deficit, although in variable amounts. Over the last four years or so the marginal contribution of off-budget items appears to be greater than in recent years. Graph 2: Federal Government LTM change in Deficit and Public Debt as share of LTM GDP 13.5% 12.0% LTM Deficit LTM change in Public Held Debt 10.5% 9.0% 7.5% 6.0% 4.5% 3.0% 1.5% 0.0% Source: HR Ratings w ith information from the US Treasury Dept. and the BEA (for GDP). Includes HR Ratings estimate for 4Q18 GDP Graph 3 shows the evolution of net interest costs and the effective cost of debt. Notable is the decline in the cost of the debt in the aftermath of the 2008 recession. Finally, Graph 4 displays the evolution of the public debt to GDP ratio. The sharp rate of increase in the aftermath of the 2008 recession, the result of stimulative fiscal and monetary policy, has ended but continues to increase. The recent legislation to lower taxes, combined with rising interest rates, expanded military and other spending may cause the metric to show more rapid expansion going forward, although that remains to be seen. Hoja 3 de 6

4 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Graph 3: Federal Government Net Interest in Billions and Effective Cost of Debt (LTM) Net Interest Outlays Interest Expense to Average Public Debt 2.5% 2.4% 2.3% 2.2% 2.1% 2.0% 1.9% 1.8% 1.7% 1.6% % Source: HR Ratings w ith information from the US Treasury Dept. and the BEA (for GDP). The cost of debt is calculated as LTM interets expense relative to LTM average public debt. Graph 4: Federal Government Gross Public Debt as share of GDP (LTM) 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% Source: HR Ratings w ith information from the US Treasury Dept. and the BEA (for GDP). Includes HR Ratings estimate for 4Q18 GDP. Hoja 4 de 6

5 HR Ratings Management Contacts Management Chairman of the Board Vice President Alberto I. Ramos Aníbal Habeica Chief Executive Officer Fernando Montes de Oca Analysis Chief Credit Officer Deputy Chief Credit Officer Felix Boni Pedro Latapí Public Finance / Infrastructure Financial Institutions / ABS Ricardo Gallegos Fernando Sandoval ricardo.gallegos@hrratings.com fernando.sandoval@hrratings.com Roberto Ballinez roberto.ballinez@hrratings.com Corporates / ABS Methodologies José Luis Cano Alfonso Sales joseluis.cano@hrratings.com alfonso.sales@hrratings.com Regulation Chief Risk Officer Head Compliance Officer Rogelio Argüelles Rafael Colado rogelio.arguelles@hrratings.com rafael.colado@hrratings.com Business Development Business Development Francisco Valle francisco.valle@hrratings.com Hoja 5 de 6

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