Deficit for July Exceeds Wall Street Prediction

Stimulus Checks, Bank Crisis Contributed

The federal budget deficit soared in July, pushed higher by economic stimulus payments and $15 billion in outlays to protect depositors at failed banks.

The Treasury Department reported that the deficit for July totaled $102.8 billion, nearly triple the $36.4 billion deficit recorded in July 2007.

The deficit outstripped the $97 billion gap that Wall Street economists had been expecting for July.

The department said outlays were pushed up by $15 billion because of payments the Federal Deposit Insurance Corp. made to depositors at failed banks. The Treasury report did not identify the banks, but federal regulators seized the assets of California-based IndyMac Bank, the largest regulated thrift to fail in U.S. history.

The FDIC is expected to recover much of its outlays for failed banks, in part by selling the assets of seized institutions. The FDIC has also raised the possibility that it will increase insurance premiums on healthy banks to cover the cost of what are expected to be rising bank failures as the current credit crisis unfolds.

Besides the FDIC payouts, government outlays were increased by the final bulk mailings of government stimulus payments in July. The July deficit also looked worse than the July 2007 deficit because last year's figure was artificially deflated by timing issues that shifted about $19 billion in normal outlays into the prior month.

So far this year, the budget deficit totals $371.4 billion, more than double last year's deficit through the same time period of $157.4 billion.

The Bush administration recently revised its forecast for this year's deficit, lowering it from an estimate of $410 billion, down to $389 billion. The Congressional Budget Office, however, is more pessimistic, projecting the deficit for this year will total $400 billion when the current budget year wraps up on Sept. 30.

For the 2009 budget year, which begins Oct. 1, the administration is now projecting a deficit of $482 billion, which would be the highest in dollar terms in history, surpassing the old mark of $413 billion set in 2004.

Through July, government revenue total $2.094 trillion, down 1 percent from the same period a year ago. Revenue has been weaker this year, reflecting the sharp slowdown in the overall economy.

Government spending so far this budget year totals $2.47 trillion, 8.5 percent higher than a year ago. That is in part because of the $168 billion stimulus package Congress passed at the beginning of the year in an effort to keep the country out of a deep recession and because of increased spending for the wars in Iraq and Afghanistan.