More good news for the U.S. economy, as the nation's budget deficit narrowed to $120.3 billion in November, the U.S. Treasury Department announced Thursday.

A Bloomberg News economists survey had expected the U.S. Government to post a $135.0 billion deficit in November, the second month of the federal government's fiscal year. The U.S. government posted a $176.4 billion deficit in October and a $46.6 billion deficit in September, to close out FY2009 with a $1.42 trillion deficit -- a fiscal year record. The deficit in 2009 was nearly three times the FY2008 deficit, due mainly to the bank bailout and the $786 billion fiscal stimulus package.
In November, federal receipts fell 7.7% to $133.6 billion from $144.8 billion in November 2008. Meanwhile, outlays decreased 5.9% to $253.9 billion from $270.0 billion in November 2008.

The U.S. government last ran a surplus during fiscal year 2001, posting a surplus of $128 billion in the last year of the Clinton administration. In the first year of the George W. Bush administration, Congress passed and Bush signed a roughly $1.1 trillion tax cut which immediately created a $200 billion structural deficit. Increased spending for the Iraq and Afghanistan wars, the war on terror programs and for the senior citizen prescription program increased the annual deficit to about $350 billion.

The Obama administration forecasts a $1.41 trillion deficit for this year, fiscal 2010, which began October 1.

Despite the U.S. large budget deficit, the bond market has (so far) shown few signs of holding up a warning sign regarding U.S. borrowing. The market is funding the excess borrowing needs of the U.S. government; plenty of demand exists for U.S. debt, lowering U.S. interest costs to service the national debt.

Analysis

Another decent, monthly data point for the U.S. economy, as November's deficit was less than the consensus estimate. The most encouraging stat? Only a 7.7% decrease in receipts, compared to the 17.6% year-over-year plunge in October. That suggests that the long period of declining federal revenue from income taxes and corporate taxes caused by the recession's layoffs and business closures is coming to an end. Meanwhile, November outlays declined 5.9%. However, outlay comparisons with a year ago are not that meaningful, due to the skewed-higher nature of outlays prompted by the bank bailout and fiscal stimulus spending. Bottom line: The improving U.S. government fiscal condition confirms a recovering U.S. economy.

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