U.S. Government Cuts Debt Payments in Half

Amid weakening manufacturing activity and poor economic growth in the beginning of the year, the United States Treasury has decided to pay less debt in the coming months.

The first quarter of 2016 saw America paying $112 billion of its bills, but because of higher spending than expected and lower receipts from a weak tax base, the Treasury’s coffers are being pressured. That means the federal government will pay just $65 billion of its debts in the second quarter, down significantly from the $112 billion it paid in the first three months of 2016.

Amid weakening manufacturing activity and poor economic growth in the beginning of the year, the United States Treasury has decided to pay less debt in the coming months.

The first quarter of 2016 saw America paying $112 billion of its bills, but because of higher spending than expected and lower receipts from a weak tax base, the Treasury’s coffers are being pressured. That means the federal government will pay just $65 billion of its debts in the second quarter, down significantly from the $112 billion it paid in the first three months of 2016.

Meanwhile, the Treasury continues to borrow significantly more than it is paying off, causing the American national debt to swell. In the third quarter of 2016, the government expects to issue $155 billion in debt, after issuing $244 billion in the first quarter. In 2015, the federal deficit was $438 billion, but that is expected to grow by 40% to $616 billion this year. That makes the deficit 3.3% of the country’s total estimated GDP for this year.

U.S. Treasuries fell on the news, with longer-term Treasuries falling over 0.5% in Monday trading.

Weak Manufacturing

In part, the difficulties the American government is having are a result of weak income in the form of tax revenue. A variety of factors are contributing to this, although several economists point to stagnant wages and growing income inequality as reasons. As income flows to wealthier households who have more tax avoidance options, the overall revenue for the Federal government falls.

Stagnant working conditions continue to become a problem for America, and a weak manufacturing sector is one cause of that trend. The Institute for Supply Management’s manufacturing index points to continued weakness, as the purchasing managers index (PMI) fell far below consensus expectations of a 0.5% drop.

In reality, a 1.9% drop to 50.8 caused the PMI to show only the slightest hint of expanding activity.

Several components of the PMI disappointed, as new orders fell (from 58.3 to 55.8), production fell (from 55.3 to 54.2), supplier deliveries lapsed into contraction (from 50.2 to 49.2), and employment continued to contract at 49.2 (versus 48.1 prior).

Alongside weak manufacturing, construction spending has nearly stagnated, with just a 0.3% month-over-month growth, below the 0.5% expectations. Private residential construction largely lead the growth, while public construction continued to see a decline with -1.9% growth from February driven by a 14.1% decline in power infrastructure construction and a 7.8% decline in public safety construction.

Private transportation construction was the highest growing private sector, rising 11.3% from February and rising 10% from a year ago.