U.S. December deficit quadruples as outlays grow, debt ceiling nears

© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration picture taken June 14, 2022. REUTERS/Florence Lo/Illustration/File Photo

By David Lawder

WASHINGTON (Reuters) -The U.S. government's December budget deficit quadrupled from a year earlier to $85 billion as receipts shrank slightly and outlays grew to a new December record, the Treasury Department said on Thursday as it neared the $31.4 trillion federal debt limit.

The results confirmed forecasts that revenues would start to ease as a red-hot economy cools, and showed that reductions in pandemic relief spending have faded. Underlying costs for healthcare, Social Security and interest on a growing pool of public debt are rising, the Treasury data showed.

A Treasury official declined to estimate when the debt ceiling may be nominally reached - an event outside analysts predict could happen in coming days or weeks. Treasury data showed that the debt on Tuesday was $58.5 billion below the limit with an operating cash balance of $368 billion.

The borrowing cap is coming into focus again in Washington as the new Republican majority in the House of Representatives threatens to use it as leverage to demand spending concessions from the Biden administration.

REVENUES PEAKED

The $85 billion December deficit compared to a $21 billion deficit a year earlier, a strong performance driven by then-record revenues and steep drops in unemployment aid as the economy recovered from the COVID-19 pandemic.

But there were calendar adjustments that shifted some January 2023 benefit payments into December. Without these, the December deficit would have been $59 billion compared to an $8 billion gap last year, the Treasury said.

The Treasury said unadjusted receipts for December shrank by 7% from December 2021 to $455 billion as individual withheld receipts fell $14 billion due to lower 2022 year-end bonus payments and Federal Reserve earnings fell to zero from $12 billion a year earlier as it paid higher interest on bank reserves.

December's unadjusted outlays grew 6% to $540 billion as Treasury-paid interest on the public debt grew by $9 billion from a year earlier and Social Security outlays also rose $9 billion because of cost-of-living adjustments, a Treasury official said.

For the first three months of fiscal 2023, which began in October, the government reported a deficit of $421 billion, a 12% increase over the same period of fiscal 2022, with receipts down 3% to $1.026 trillion, and outlays up 1% to $1.447 trillion, also a record for the period.

Interest on the public debt for the year-to-date period totaled $210 billion, up 37% or $57 billion compared to a year earlier. The Treasury official said the increase was due to higher interest rates paid on conventional debt that had expanded by $1.8 trillion from a year earlier. Payments related to inflation-protected securities fell during the first three months of fiscal 2023.