Bloomberg News

U.S. Raises Borrowing Needs Estimate on Spending, Lower Revenue

November 02, 2011

Oct. 31 (Bloomberg) -- The U.S. Treasury Department raised its estimate for fourth-quarter government borrowing by $21 billion to $305 billion, reflecting in part lower revenue and higher spending.

The estimates set the stage for the Treasury’s quarterly refunding announcement later this week. Officials on Nov. 2 will reveal their plans for sales of longer-term notes and bonds during the current quarter.

“The increase in borrowing relates to lower receipts, higher outlays and changes in the cash balance assumptions partially offset by higher net issuances of state and local government series securities,” the Treasury said in a statement today in Washington, revising upward the fourth-quarter projection of about $285 billion made three months ago. U.S. Treasury officials also project borrowing of $541 billion from January through March of next year.

The outlook for Treasury borrowing depends in large part on congressional action, economists said, citing the Nov. 23 deadline for the supercommittee charged with cutting at least $1.2 trillion from the budget deficit. In the fiscal year ended Sept. 30, the government reported the second-highest annual deficit on record, $1.3 trillion.

“It all depends on what the budget talks come up with,” Lou Crandall, chief economist at Wrightson Icap LLC in Jersey City, New Jersey, said before the borrowing statement was released.

Cash Balance

The Treasury said its forecasts assume a cash balance of $60 billion for Dec. 31 and the same amount for the end of March.

In the quarter that ended Sept. 30, the Treasury borrowed $286 billion, compared with a previous estimate of $331 billion, according to the statement.

“‘The decrease in borrowing was related to lower receipts offset by lower outlays and cash balance adjustments that lowered the estimated end-of-quarter cash balance,” Treasury said.

House Speaker John Boehner and Minority Leader Nancy Pelosi have urged the supercommittee to agree on a plan before its Nov. 23 deadline. The full Congress has until Dec. 23 to approve whatever proposal the supercommittee delivers. Failure to reach an agreement would lead to an automatic $1.2 trillion in across- the-board cuts for domestic programs as well as the military that would take effect in 2013.

Standard and Poor’s downgraded U.S. debt to AA+ from AAA on Aug. 5, although the markets have shrugged off concerns about the U.S.’s creditworthiness.

Treasury Financing

The Treasury financing outlook has shifted considerably due to the Federal Reserve’s program to lengthen maturities in its portfolio, said Stephen Stanley, chief economist for Pierpont Securities. The effort is known as Operation Twist after a similar program in the 1960s.

“Treasury will probably need to begin modestly raising coupon auction sizes in the spring to account for the rise in maturing debt held by the public caused by Operation Twist,” Stanley said in a preview note dated Oct. 28. “Second, the Fed’s efforts to manipulate the yield curve complicate the Treasury’s efforts to manage its strategy in terms of optimizing the average maturity of the debt.”

In addition, Treasury debt managers sparked speculation about the possibility of floating-rate notes by seeking comment in this quarter’s agenda questions, according to Stanley. He said he does not “rule out the idea that the Treasury may choose to issue floating-rate notes.”

President Barrack Obama is asking Congress for assistance in reviving the labor market. Through September, the economy had recovered about 2.09 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

The unemployment rate has been at or above 9 percent since April. While household-sentiment measures are at levels typically observed during a recession, an increase in spending during the third quarter boosted growth to the highest level of the year, Commerce Department figures showed Oct. 27.

“Everyone including the Treasury has an uncertainty quotient,” Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, said before the report.

--With assistance from Ian Katz in Washington. Editors: Kevin Costelloe, Carlos Torres

To contact the reporters on this story: Vincent Del Giudice in Washington at vdelgiudice@bloomberg.net; Cheyenne Hopkins at chopkins@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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