Ahead of the Bell: Budget and Trade Deficits

AP News
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Posted: Dec 10, 2009 6:31 AM

Wall Street economists expect the federal budget deficit for November grew compared with the same month last year, while the October trade imbalance rose from September.

The deficit for the 2009 budget year that ended Sept. 30, set an all-time record in dollar terms of $1.42 trillion and economists worry that the surge could push up interest rates, dragging on the fragile economic recovery.

The budget deficit for last month will total $135 billion, according to economists surveyed by Thomson Reuters. That would be larger than the $125 billion deficit in November 2008, but lower than the $176 billion imbalance recorded in October.

The Treasury Department will release the monthly budget report Thursday at 2 p.m. EST.

The October imbalance came mostly from lower receipts of individual and corporate taxes. Spending also dipped, but the October 2008 outlays were inflated by the $33 billion spent on the first round of financial bailouts at the peak of the financial crisis.

The Obama administration expects this year's deficit to reach $1.5 trillion, which would be a third straight record.

In relation to the overall economy, the 2009 deficit was 9.9 percent of the gross domestic product. That was the highest level since the World War II-era deficit hit 21.5 percent of GDP in 1945.

The administration projects the deficit will remain above $1 trillion in 2011. The concern is that government borrowing at such levels will start to push interest rates higher as the economy begins to recover, making it more expensive for businesses and consumers to borrow the money they need. Another worry is that foreigners could become spooked by the size of all the deficits and cut back on their purchases of Treasury debt.

Meanwhile, the trade deficit for October likely will total $36.75 billion, according to a Thomson Reuters survey, a slight increase from September's $36.47 billion imbalance.

The September trade deficit jumped 18.2 percent from August, the biggest monthly gain since February 1999.

Exports grew for a fifth straight month, helped by a declining dollar. But a 20 percent jump in oil shipments helped imports rise faster, signaling that the U.S. economy has begun to rebound from a deep recession.

Higher exports, spurred by a lower dollar, probably won't reduce the trade gap and boost the U.S. economy until 2011, economists said.

When the dollar declines compared with other currencies, it makes U.S. exports cheaper and imports more expensive, narrowing the trade deficit.

The Commerce Department will release the October report Thursday at 8:30 a.m. EST.