The August budget numbers continue to show that tax revenues are rising much faster than spending. Over the past three years, federal government spending has risen at a very modest 1.6% annualized rate, although it has picked up a bit of late: over the past six months, spending has increased at a 5.2% annualized rate. But overall, the slow pace of spending growth in recent years is a godsend, as it has allowed government spending as a % of GDP to decline from 25.2% of GDP to now "only" 23.5%.
Spending is still too high, and threatens to rise further as Obamacare kicks in and entitlement programs continue to expand. Tax revenues, on the other had, are up 5.3% over the past year and have risen at a 4% annualized pace over the past three years.
If these trends continue, the budget will eventually balance and spending will shrink to an acceptable level relative to GDP. To date, the deficit over the past 12 months has been $1.26 trillion, which is down from a high of $1.48 trillion in early 2010. Thank goodness for small favors.
The number of people "on the dole" continues to decline, and that is also a good thing from a macro perspective. 18.4% fewer people are receiving unemployment insurance today than there were one year ago. This is helping to moderate federal spending, and it is creating positive incentives to find and accept jobs.