The federal government reported a $66.2 billion monthly budget deficit in May compared with a deficit nearly double that amount a year ago, the U.S. Treasury Department reported Friday.
The federal budget deficit is on track to fall below $1 trillion in fiscal 2022 for the first time since the start of the pandemic, Mervin Jebaraj, director for the Center for Business and Economic Research at the University of Arkansas, said Friday.
Jebaraj said last month that the federal budget deficit level in April was on par with fiscal 2019 prior to the pandemic, and predicted wages will keep rising this year.
U.S. Bureau of Labor statistics reported last week that over the past 12 months, average hourly earnings have increased by 5.2%.
"We're currently on track to have probably one of the lower budget deficits we've seen in a long time, but that is sort of contingent on incomes and wages remaining fairly high as they have been the past couple of months and maybe last year as well," Jebaraj said, adding labor statistics show wage increases are slowing but not declining.
"They're still going up but just at a slower pace," he said.
In May, the year-to-date federal budget deficit grew to $426.2 billion for the first eight months of fiscal 2022, which ends Sept. 30, after shrinking to $360 billion in April.
The deficit decreased in April because of a large budget surplus of $308 billion during tax season.
"I think this April's tax collections were still higher than maybe previous years before the pandemic, if I remember correctly," Jebaraj said.
Government spending decreased by 24% in May to $455 billion compared with the same month one year ago.
Reduced government spending related to the pandemic played a part in the decrease, Jebaraj said.
"A lot of that government spending came from the stimulus bills that were passed in 2021 to deal with the pandemic and all that money has now gone away," Jebaraj said.
"The government is not giving businesses and people as much money as they were, so we do expect [government] spending to slow down."
While the government is spending less money, consumers are now spending more.
U.S. inflation hit a new 40-year high in May. Consumer prices were 8.6% higher compared with May 2021, which is faster than the 8.3% increase from this past April compared with the year prior. Prices of gasoline, food and most other goods and services jumped last month.
Jebaraj said rising gasoline prices are an a major contributor to inflation.
"When we looked at March data, that was when the gas prices went up as a result of the Russian invasion of Ukraine and then it declined in April when China was shut down, then was China is reopening, so the gas prices went back up, so gas prices contribute to maybe 20% of the (disposable personal income) and when you consider all the places that you use gas that also goes into the inflation measures, when gas prices are this high, obviously we would expect to see inflation levels increase."
Higher prices for airline tickets, hotel accommodations, restaurant meals and cars have contributed to the surge.
"We're not surprised to see the really high inflation rates," he said.
Accumulating deficits add to the overall federal debt, which totaled nearly $30.4 trillion as of Thursday. That figure includes more than $6.5 trillion the government owes itself, including about $2.9 trillion borrowed from the Social Security Trust Fund, according to Treasury Department reports.