Evelyn Reynolds

The three-month fiscal year 2025 deficit rose to $710.9 billion, some $200 billion more than the comparable period in the prior year, or 39.4%.
Rising financing costs along with continued spending growth and declining tax receipts have combined to send deficits spiraling and have pushed the national debt past the $36 trillion mark.

A view from the United States Department of the Treasury building in Washington DC, United States on December 30, 2024. The US Treasury Department was cyberattacked by a Chinese state-sponsored actor in early December. 
Celal Gunes | Anadolu | Getty Images

The federal budget sank further into red ink during December, leaving the first fiscal quarter deficit nearly 40% higher than it was the prior year.
For the final calendar month of 2024, the shortfall totaled $86.7 billion, which actually represented a 33% decline for the same period a year prior, according to a Treasury Department report Tuesday. However, that brought the three-month fiscal year total to $710.9 billion, some $200 billion more than the comparable period in the prior year, or 39.4%.

Rising financing costs along with continued spending growth and declining tax receipts have combined to send deficits spiraling, pushing the national debt past the $36 trillion mark.
Though short-term Treasury yields have held fairly steady over the past month, rates at the far end of the duration curve have surged. The benchmark 10-year note most recently yielded close to 4.8%, or about 0.4 percentage point above where it was a month ago.
At the same time, outlays during the first quarter were 11% higher than a year ago while receipts fell by 2%.
Interest on the national debt has totaled $308.4 billion in fiscal 2025, up 7% from a year ago. Financing costs are projected to top $1.2 trillion for the full year, which would surpass 2024’s record.
The government this year has spent more on interest payments than any other category but Social Security, defense and health care.

Don’t miss these insights from CNBC PRO More

The producer price index rose 0.2% in December, less than the 0.4% increase in November and below the Dow Jones consensus estimate for 0.4%.
Excluding food and energy, the so-called core PPI was flat compared with the forecast for a 0.3% rise.
The release is the first of two key inflation readings this week that likely will figure into the Federal Reserve’s interest rate decision later in January.

A measure of wholesale prices increased less than expected in December, providing indication that pipeline inflation pressures eased to close the year though likely not enough to provoke another Federal Reserve interest rate cut anytime soon.
The producer price index rose just 0.2% on the month, less than the 0.4% increase in November and below the Dow Jones consensus estimate for 0.4%, according to a Bureau of Labor Statistics report Tuesday.

Excluding food and energy, the so-called core PPI was flat compared with the forecast for a 0.3% rise. Excluding food, energy and trade services, the measure rose just 0.1%.
On an annual basis, headline PPI rose 3.3% for the full year, well ahead of the 1.1% increase in 2023.
Goods prices increased 0.6%, pushed by a 9.7% surge in gasoline prices. Upward moves in several food- and energy-related measures were offset by a 14.7% slide in prices for fresh and dry vegetables.
On the services side, prices were flat, despite a 7.2% increase in passenger transportation that was offset by a fall in prices for traveler accommodation.
Stock market futures shot higher following the report while Treasury yields moved lower after pushing sharply higher in the early days of 2025.

The release is the first of two key inflation readings this week that likely will figure into the Federal Reserve’s interest rate decision later in January.
On Wednesday, the BLS will release its more closely watched reading on the consumer price index. That is expected to show 0.3% monthly gains on both the headline and core readings and respective annual inflation rates of 2.9% and 3.3%.
Though the central bank focuses more on the Commerce Department’s personal consumption expenditures price index as its main inflation gauge, the PPI and CPI readings figure into that calculation.
Markets pricing overwhelmingly points to the Fed staying on hold at the Jan. 28-29 meeting. However, policymakers, and Chair Jerome Powell in particular, could lay the groundwork for what is ahead as far as rates go.
Fed funds futures pricing Tuesday implied just one rate cut through the rest of the year; Bank of America economists on Monday said they think the Fed could be done this year. Fed officials at their December meeting penciled in the equivalent of two cuts this year, assuming quarter percentage point moves.

Don’t miss these insights from CNBC PRO More

The march higher in U.K. government bond yields since the Labour government presented its debut budget plan in October has sparked concern, as borrowing costs rose to breached numerous decade highs.
Economists at research group Capital Economics said gilts may be trapped in a “vicious circle,” in which “the rise in U.K. yields puts a strain on public finances, therefore calling for an even bigger tightening of fiscal policy, but in turn putting additional strain on the economy.”

The march higher in U.K. government bond yields since the launch of the Labour government’s debut budget plan in October sparked widespread concern last week, as borrowing costs rose to breach numerous decade highs.
The prospect of public spending cuts or further tax rises came into focus last week, as 30-year gilt yields hit their highest level since 1998. Despite initially falling after Labour’s election victory in July, 2-year gilt yields have also climbed back above 4.5%, while the 10-year yield reached levels not seen since 2008.

Waning investor confidence in the U.K. was particularly highlighted by a concurrent fall in sterling, which on Friday hit its lowest level against the U.S. dollar since November 2023.

Loading chart…

Borrowing costs are also rising in the euro area and the U.S., and economists point out that the U.K. is being weighed on by external factors including the return of Donald Trump to the White House and expectations for broadly higher interest rates than previously expected this year.
But the surge in U.K. yields is nonetheless a major headache for the U.K. government, which has pledged to reboot economic growth while ensuring debt declines as a share of the economy within five years. U.K. public sector net debt currently stands at nearly 100% of GDP.
“The rise in gilt yields has a self-reinforcing feedback loop through the U.K.’s debt sustainability, by increasing borrowing costs used for budgeting purposes,” ING Senior European Rates Strategist Michiel Tukker said in a Friday note.
Tukker cited analysis by the independent Office of Budget Responsibility which indicates that the recent rise in yields — if sustained — would wipe out the government’s estimated headroom of £9.9 billion ($12.1 billion) for meeting its self-declared fiscal rules. Those regulations commit Labour to covering day-to-day government spending with revenues, as well as a goal of moving toward a decline in the U.K.’s debt to GDP ratio on a longer timeframe.

The Institute for Fiscal Studies think tank said Friday there is a “knife edge,” chance of the U.K. achieving the former fiscal rule, but that Finance Minister Rachel Reeves could “get lucky.”
She otherwise faces an “unenviable set of options,” said IFS Associate Director Ben Zaranko, including bringing forward upcoming changes to how debt is calculated to free up more headroom, paring back current spending plans and announcing more tax rises, which could be conditional on changes within the coming years. The minister could also opt to do nothing and break her rule.
Economists Ruth Gregory and Hubert de Barochez at research group Capital Economics also said U.K. gilts may be trapped in a “vicious circle,” in which “the rise in U.K. yields puts a strain on public finances, therefore calling for an even bigger tightening of fiscal policy, but in turn putting additional strain on the economy.”

Stock chart icon

Pound vs dollar.

Bank of America Global Research strategists on Friday said that it was unlikely Labour would breach its rules and would instead announce further fiscal consolidation — measures to reduce public debt, generally public spending cuts or tax hikes — in the spring or earlier.
That would potentially be achieved through spending cuts, they added, coming off the back of the £40 billion in tax hikes that Labour announced in October.
A Treasury spokesperson told CNBC: “This Government’s commitment to fiscal rules and sound public finances is non-negotiable.”
“The Chancellor has already shown that tough decisions on spending will be taken, with the spending review to root out waste ongoing. And over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”

UK in ‘slow growth trap’ — but not a mini-budget crisis

Former U.K. Finance Minister Vince Cable told CNBC on Friday that higher bond yields were being seen in many countries and were not an “emergency panic situation” — but that markets had realized Britain was stuck in a “slow growth trap.”
“We’ve been there for many years, since the Financial Crisis, then Brexit, then a problem with Covid[-19] and Ukraine war, and we’re stuck with relatively high inflation, very slow growth, and so the markets are marking the U.K. down, relatively speaking. But this is not a panic situation, it’s not a crisis of the old-style balance of payment sell-off situation,” Cable said.
Labour should have gone for a broader range of tax rises rather than focusing on a hike in National Insurance — a levy on wages — which has been slammed by the U.K. business community, Cable said. However, he added that the market has broader concerns over U.K. growth and the global economic picture, which is clouded by external factors, such as the weaker Chinese outlook.

Britain’s economy flatlined in the third quarter, revised figures show

Cable also downplayed comparisons with the U.K. mini-budget crisis in 2022, when then-Prime Minister Liz Truss’s announcement of sweeping tax cuts triggered massive volatility in the bond market.
“The Truss moment was a prime minister just taking a reckless leap into the dark with a big increase in the budget deficit on the assumption this will somehow trigger economic growth. Well, that clearly isn’t what’s happened this time. The argument is about whether they’ve done enough tightening and whether they’ve done it in the right way, but it’s a different kind of problem,” Cable told CNBC.
That sentiment was broadly reflected in wider analysis. Bank of America strategists called comparisons with the mini-budget “overblown,” noting that the bar for the Bank of England to intervene in the gilt market, as it did at the time, was high.
Capital Economics said last week’s higher gilt yields were an economic headwind but not a crisis, with smaller and slower moves than after the mini-budget. David Brooks, head of policy at consultancy Broadstone, said there did not appear to be any “systemic issues at play” in the liability-driven investment (LDI) funds, which were the biggest concern back in 2022. More

Health care and government were the two sectors that saw the most job growth in both 2024 and 2023.
But a second Trump administration may pose risks to growth in both areas.
Conversely, Trump’s proposed tariffs could boost lagging sectors, such as manufacturing.

Shapecharge | E+ | Getty Images

The labor market may be poised for dislocation with President-elect Donald Trump set to take office for the second time later this month.
For the past two years, health care has dominated all other industries in terms of growth, aided partly by Covid-related spending. The health care and social assistance sectors added 902,000 jobs in 2024, according to Friday’s employment report from the Bureau of Labor Statistics, almost as many as the 966,000 jobs they created in 2023.

The government sector came in a distant second, creating some 440,000 jobs in 2024, down from 709,000 in 2023.
Part of the growth in health care jobs is also tied to rising population and a burgeoning number of retirees, said Elise Gould, senior economist at the Economic Policy Institute.

“Healthcare and social insurance has been rising gangbusters for years now,” Gould told CNBC in a Friday interview. “Some of that is an aging population, some of it is just population growth.”
Looming change
But that could change in a second Trump administration, especially if it brings mass deportations and a renewed debate over foreign labor visas. Immigrants accounted for nearly 18% of health care workers in 2021, according to the Migration Policy Institute.
“There’s already such high demand there and if we have mass deportations, that’s certainly going to come at a cost for the services that can be provided in those sectors,” Gould said. “You could then have shortages that could lead to more inflation because you’re going to have employers trying to beat out each other to try to get the fewer workers that there might be, and that could cause problems in the macroeconomy.”

The government sector has been the second-fastest growing sector the past two years. Much of that growth has happened at the state level, Gould said. The state-level government workforce grew at a faster pace than local last year, while the federal government employee base rose at roughly the national rate.

But, as with health care, the government sector could see workforce reductions under President-elect Trump’s new Department of Government Efficiency, a strictly advisory body headed by Elon Musk and Vivek Ramaswamy that aims to slash government spending.
“If you get rid of that kind of a policy at the federal level, you’re going to lose lots of highly productive workers, and so that could be a detriment to the services that they provide and obviously to the overall economy,” Gould said. “Unemployment can go up … So many things can happen if you damage that vital federal workforce, and if there’s less funding at the same local level that can be problematic as well.”
Manufacturing growth — maybe
Conversely, a Trump administration may prove positive for sectors such as manufacturing and mining and logging, the two groups that saw the weakest job creation in 2024. Trump’s proposed tariffs could boost growth in these industries, but Gould said it’s impossible to predict by how much.
With concerns around sticky inflation looming into the new year, Gould said that the focus on the labor economy moving forward should be the share of corporate sector income that goes to workers versus profits, which she said is still “very, very low.”
“When workers have money in their pockets and they spend it on goods and services, that drives the production of goods and the provision of services,” she said. “Even though we’ve seen productivity growth and we’ve had inflation come down, there is just a lot more room for wages to rise without putting upward pressure on inflation.” More

The unemployment rate slipped to 5.4% for Black women last month, reflecting an improvement from November’s rate of 5.9%.
Hispanic men also saw an improvement in the jobless rate in December, as it slipped to 4.0%.
Overall, the jobless rate inched lower in December to 4.1%, reflecting a resilient labor market.

A jobseeker holds flyers during the New York Public Library’s annual Bronx Job Fair & Expo at the the Bronx Library Center in the Bronx borough of New York, on Sept. 6, 2024.
Yuki Iwamura | Bloomberg | Getty Images

The unemployment rate fell for Black women in December, following an alarming increase in the figure for November.
Overall, nonfarm payrolls grew much more than expected in December, rising 256,000 in the month and topping economists’ prediction for a gain of 155,000, per Dow Jones. The unemployment rate ticked down to 4.1% in a sign of a resilient labor market. The data fueled the belief that the Federal Reserve may cut interest rates much less than anticipated this year.

For Black women, the unemployment rate dropped to 5.4% in December. That is down from 5.9% in November, when the jobless rate rose nearly a percentage point for the cohort. The labor force participation rate, which tracks the population employed or seeking work, inched up to 62.4%.
Among Black workers overall, the unemployment rate also declined in December, slipping to 6.1%. That compares to a rate of 6.4% in November and 5.7% in October.
“There were some concerns about the Black unemployment rate going up,” said Elise Gould, senior economist at the Economic Policy Institute, referring to November’s uptick. “It’s still significantly higher than for other groups — and that’s still a concern — but nothing in this report jumps out as particularly problematic.”

Black men also made strides, with the jobless rate declining to 5.6% in December from 6% a month earlier. The labor force participation rate for the cohort inched lower to 68.2% last month from 68.7%.
Hispanic men also saw their unemployment rate improve in December, ticking down to 4% from 4.4% as the labor force participation improved.

Though the unemployment rate among Hispanic women inched up to 5.3% last month from 5.2%, Gould noted that this shift is within the margin of error. “There’s a lot of volatility with the data,” she said. “I would say that things mostly held steady.”
By comparison, the jobless rate fell to 3.6% in December among white workers overall. That’s down from 3.8%. Among white men, the unemployment rate slipped to 3.3% last month from 3.5%, but the figure held steady at 3.4% for white women.

Don’t miss these insights from CNBC PRO More