Good news from the fiscal front: The federal deficit is shrinking faster than expected.
During the first half of fiscal 2013, revenues have come in greater than forecast, and spending, less; Goldman Sachs expects the total deficit to equal 4.8 percent of gross domestic product (GDP), rather than 5.6 percent as the investment bank once believed. Also, Goldman says the deficit will decline to 2.7 percent of GDP by fiscal 2015, as opposed to 2.8 percent, as previously estimated.
These numbers reflect the tax rate increases and spending restraints imposed by Congress and President Barack Obama over the last two years, as well as the economy's continuing modest growth. The recovery is generating jobs and corporate profits, albeit at a less-than-desirable rate, which translates into lower outlays for unemployment insurance and higher tax receipts. And though declining deficits may create "fiscal drag" on growth, Goldman sees that effect diminishing after next month.