The primary data point that the perennial bulls on Wall Street claim as evidence for an improving economy is the monthly jobs number. The Non-farm Payroll Report claimed that 255,000 jobs were added in July on a seasonally adjusted bases.
This number was well above the 12-month average of 190,000. And according to the Bureau of Labor Statistics (BLS), a total of 1.66 million additional people have been employed thus far in fiscal 2016, making this the one bright spot in the economy.
With 1.66 million additional paychecks flooding the economy, one would assume the U.S. Treasury was flush with new tax receipts, which would assist in reducing the budget deficit.
However, according to the Treasury Department, the deficit came in at $112.8 billion in July, the highest since February's $192.6 billion. For the first ten months of the fiscal year, which ends Oct. 1, the budget deficit was $513.7 billion, up from $465.5 billion a year earlier.
Obviously, the government runs a deficit when it spends more than it collects in taxes and other revenue, as is almost always the case. But this year the Congressional Budget Office (CBO) is predicting the 2016 deficit will total $590 billion, up more than 34 percent from last year's budget shortfall. Most importantly, this growing gap comes primarily because of lower-than-expected receipts to the Treasury.
A closer look at tax receipts over the past few years reveals that the growing number of employed has not had the effect on cash flows to the Treasury that you would expect. Receipts from the Federal Unemployment Tax Act (FUTA) have been falling steadily since 2012, according to the Office of Management and Budget, moving counter to the growing number of people employed. The FUTA tax is levied at 6 percent on the first $7,000 of an employee's wage.