WASHINGTON -- A government report predicts the U.S. budget deficit will hit $897 billion this year, up $118 billion from last year's $779 billion deficit.
However, the budget deficit will not hit $1 trillion until fiscal 2022, two years later than previously projected, thanks in large part to planned budget cuts, according to the Congressional Budget Office, a nonpartisan arm of Congress.
"That reduction in projected deficits results primarily from legislative changes -- most notably a decrease in emergency spending," the agency said, citing a reduction in funds earmarked for natural disasters such as hurricanes.
Monday's report also predicts that economic growth will slow over the next three years. Growth was an estimated 3.1 percent last year, but the budget office sees that easing to 2.3 percent in 2019, 1.7 percent in 2020 and 1.6 percent in 2021.
The budget office predicted that the boost from President Donald Trump's tax law -- which cut corporate and individual income taxes by $1.9 trillion over a decade -- would fade in the years ahead, while tariffs imposed by the Trump administration may dent the economy as well as hit business confidence.
Meanwhile, unemployment is expected to fall to 3.5 percent in the second half of this year, its lowest point since the 1960s.
In a separate report, the budget office said the five-week federal government shutdown will cause about $3 billion in permanent harm to the economy. That will slow growth in the near term, but the office projects that most of the lost growth "will eventually be recovered."
Most of the 800,000 furloughed federal workers returned to their jobs Monday. A partial government shutdown is possible again next month when funding for many agencies runs out Feb. 15 under the short-term spending deal reached Friday.
The $3 billion projected loss in gross domestic product is a modest part of a $20 trillion-plus economy.
"The shutdown dampened economic activity mainly because of the loss of furloughed federal workers' contribution to [gross domestic product], the delay in federal spending on goods and services, and the reduction in aggregate demand," the report said.
"Underlying those effects on the overall economy are much more significant effects on individual businesses and workers," the Congressional Budget Office said. "Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business. Some of those private-sector entities will never recoup that lost income."
Larry Kudlow, Trump's top economist, disagreed with that assessment of the shutdown, telling reporters at the White House on Monday that there was "certainly no permanent damage to the economy" because of it.
The director of the National Economic Council said the White House "frequently" disagrees with the budget office.
U.S.' DEBT BURDEN
Meanwhile, the U.S. debt burden will keep rising, the budget office said in its deficit report.
"Because of persistently large deficits, federal debt held by the public is projected to grow steadily, reaching 93 percent of GDP in 2029 -- its highest level since just after World War II," according to the report.
The White House has said the tax cuts will pay for themselves by creating more revenue through faster and sustainable economic growth, though the latest data show that isn't expected to happen. The International Monetary Fund has warned that tax reductions risk putting the nation's debt on an unsustainable path and could cause the economy to overheat.
The concern among deficit hawks is that ballooning debt risks a nation's credit-worthiness, increases borrowing rates, and downgrades its status in the global financial system if it grows aggressively past gross domestic product -- though those are worst-case scenarios.
Risks are exacerbated by a trade war with China and the overall slowing in the U.S. economy as it nears its longest expansion on record. As company and consumer spending eases, thereby cooling annual GDP expansion, the country's debts pile up faster than it can pay them off.
In addition, there is the expense of maintaining a debt. Over the next decade, the U.S. government will spend about $7 trillion just to service the nation's debt, according to the budget office.
However, neither Trump nor Democrats controlling the House are expected to make curbing the deficit a priority.
"Republicans' massive tax giveaway to millionaires and big corporations is inflicting serious damage on our budget outlook," said House Budget Committee Chairman John Yarmuth, D-Ky. "We are facing trillion-dollar deficits and an increasingly bleak fiscal future."
The last time the U.S. ran a budget gap larger than $1 trillion was between 2009 and 2012 as President Barack Obama's administration worked to pull the country out of a recession, including through a bailout for financial markets and a stimulus plan.
The U.S. Treasury Department is set to maintain elevated sales of long-term debt, with new issuance projected to top $1 trillion for a second-straight year.
Many strategists at primary-dealer firms predict that this Wednesday's quarterly refunding announcement will see the Treasury maintain note and bond sales at the record-high levels they have boosted them to in recent months.
The total amount of three-, 10- and 30-year securities to be offered at next week's refunding auctions is predicted by most to be about $84 billion. While that's $1 billion more than the total for these maturities three months ago, that's only because the size of the three-year sale was already nudged higher in December.
The heightened supply of Treasury securities follows tax cuts and government spending increases implemented under the Trump administration. That's darkening a fiscal outlook already made worrisome by rising entitlement-program expenses and higher costs to service America's debt.
The Federal Reserve's balance-sheet runoff is also adding to supply, forcing Treasury Secretary Steven Mnuchin to tap the public for more funding.
"We've seen deficits continue to blow out," said Brian Edmonds, head of interest-rates trading at Cantor Fitzgerald in New York. "We are going to see more and more supply."
Despite the flood of supply, Treasury yields haven't surged higher because demand hasn't slackened for the world's safest securities, which also act as a global benchmark. Yields on the five-year note, a tenor closely in line with the average maturity of U.S. debt at 69 months, has risen about 0.4 percentage point since 2017 and was about 2.6 percent on Monday. It's down from a peak last year of 3.1 percent.
"With all these problems, we're still in better shape than so many of the other advanced economies," said Phillip Swagel, a University of Maryland professor and former Treasury official during the George W. Bush administration.
Information for this article was contributed by Andrew Taylor and staff members of The Associated Press; and by Andrew Mayeda, Liz Capo McCormick, Saleha Mohsin, Alex Tanzi, Katia Dmitrieva, Elizabeth Stanton and Chris Middleton of Bloomberg News.
A Section on 01/29/2019
Print Headline: '19 deficit of $897B predicted