US: Government spending contributing to growth - Wells Fargo

US June’s national budget showed a deficit of $75 billion that was in line with Wells Fargo expectations. They remain of the view that the FY 2018 deficit will be about $775 billion. Regarding the stimulus impact from the recent budget deal, they see that it is starting to become evident. 

Key Quotes: 

“The federal budget deficit in June was $74.9 billion, almost exactly in line with our forecast of $75.0 billion. For the fiscal year as a whole, the budget deficit is about $80 billion wider than last year, with one quarter still to go.”

“As we have written previously, the federal budget deal reached in March will likely boost government consumption and investment, providing a near-term stimulus to growth separate from the tax cut.”

“Defense spending is one sector where the growth is beginning to become evident.”

“We expect the deal to add a few tenths of a percentage point to real GDP growth in 2018, with the impact fading by the second half of 2019.”