The U.S. Treasury reported $210 billion surplus in April reflecting the influx of individual income tax payments, but Arkansas economists remain concerned about swelling national debt.
The year-to-date deficit for fiscal year 2024 was $855 billion.
The $567 billion in outlays reported in April is more than 25% higher than government spending reported for April 2023. Government spending had been increasing monthly since January, but April was the first time in 2024 that government spending declined, down from $568 billion reported in March.
The $776 billion in revenue the Treasury reported in April -- up 22% from April 2023 -- was bolstered by the receipt of $482 billion in individual income taxes.
Inflation has not cooled sufficiently to appease the Federal Reserve, so the Fed is not expected to cut interest rates at its June meeting, according to a University of Arkansas Division of Agriculture Extension report released Friday.
Inflation, as documented in the monthly consumer price index report, has fallen from a post-covid-19 peak of 9.1% in June 2022 but has stalled at 3.5%; the Fed had raised rates to slow rapid economic growth as the pandemic waned.
Still, consumers continue to spend money and businesses added 175,000 jobs in April.
"At this point, we were supposed to be in a better spot," Ryan Loy, extension agricultural economist with the University of Arkansas Division of Agriculture, said in the report. "But we're still in a strong economic climate. However, it's an economic climate in which inflation rises with growth, which is essentially the definition of 'stagflation.'"
"The economy is still going quite strong, and it's sort of (a) puzzle as to why despite the fact that interest rates have gone up, that the economy continues to perform so strongly," said Raja Kali, chair of the Department of Economics at the University of Arkansas Walton College of Business.
"There are some hypotheses about that ... but it is something that economists are beginning to think about because normally you would expect that as interest rates go up, the economy would slow down, but that hasn't really happened and inflation is still pretty high and interest rates are still pretty high."
"Overall, the federal deficit is getting dangerously large," Kali said. "I think there's some concern that the U.S. budget deficit is continuing to grow."
Kali said it is "a bit worrisome" that the government's budget deficit is currently roughly 96% of the gross domestic product, but said consumers haven't seemed overly concerned about it.
Kali said this could be because: "Until now, it really hasn't had any serious impact on the economy because the U.S. Treasury has been able to continue to finance the deficit, historically, at extremely low interest rates, but now interest rates are higher and servicing the (public debt) is going to chew up a significant fraction of whatever revenues are coming in, so that is a problem," Kali said.
"As long as global investors continue to have an appetite for U.S. government bonds, it really hasn't had a serious impact, but there's no guarantee that will continue, particularly now that the budget deficit has reaching almost the size of the overall economy. Many people expect that there's a reckoning that will be coming and it could either lead to higher inflation or reduced spending or ... taxes having to go up, and for that last option, it doesn't look like there's any political appetite for that on either side."
The national debt was $34.5 trillion as of May 8.