Chart of the Month | U.S. Budget Deficit Hits Record Highs

May 6, 2021 |
2 minute read
|

In his first 100 days as President of the United States, Joe Biden has introduced three domestic funding proposals, totaling close to $6.0 Trillion, reflecting a desire to enhance the role of the Federal government while attempting to bring change to the economy’s perceived weaknesses and inequalities.

In the last week of April, the President detailed a collection of spending increases and tax cuts, seeking to expand access to education, reduce the cost of childcare and support women in the work force. While some details remain vague, the American Families Plan includes $1.0 Trillion in new spending and $800 Billion in tax credits and is expected to be paid by boosting tax revenue through rate hikes and increased enforcement against wealthier tax evaders. Together with the American Jobs Plan which is Mr. Biden’s infrastructure initiative, and the American Rescue Plan which included direct payments to consumers, extended unemployment insurance benefits and support for vaccine distribution, the massive spending by the U.S. government is expected to keep the budget deficit as percent of GDP at record highs in 2021 before declining in 2022 and 2023.

In this chart of the month, we show that on average, the budget deficit per data from the Congressional Budget Office was around 3.3 percent of nominal Gross Domestic Product for the last 40 years. In March 2021, the budget deficit reached $660 Billion, the third highest monthly deficit on record, surpassed only by the gaps of $864 Billion and $738 Billion in June and April last year, respectively. As a result of this unprecedented government support, consumers have mostly withstood the effects of the pandemic while also increasing the average personal savings rate as a percent of disposable income to 27.6 percent, significantly above the 9.1 percent average since the 1940s. U.S. personal incomes also soared by 21.1 percent in March – the most in monthly records since 1946. Meanwhile, GDP growth accelerated to an annualized rate of 6.4 percent driven by a massive 10.7 percent growth in consumption.

While investors expect another round of fiscal stimulus to be passed, it may not be smooth sailing. It was easy to vote in favor of sending money to people immediately in the midst of a pandemic, but fiscal conservatives will have concerns about raising taxes and funding massive infrastructure spending that will take many years to produce the promised benefits. As a result, we expect that there will have to be a compromise on the White House’s current proposal for it to pass the Congress. At Commonfund, we maintain a cautiously optimistic point of view with respect to growth assets as the economy reopens and the Federal Reserve continues to target full employment. However, we remain vigilant about the potential negative impact of Biden’s proposal to increase corporate tax rates and to nearly double the U.S. capital gains tax.

img-com-chart-of-the-month-2021-05

 

Ivo C. Nenin

Author

Ivo C. Nenin

Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.