As effortlessly as magic, the US economic recovery is helping shrink Washington’s budget deficit as more taxes and income roll in and fewer welfare payments are sent out. The Congressional Budget Office predicts the US federal deficit will narrow to about 4% of GDP this year and dwindle to 2.1% of output by 2015 – less than a quarter of the post-crisis high of 8.5% of GDP in 2010.
Improved government finances are just one of the benefits of a stronger US economy, which expanded at an annual rate of 2.5% in the first quarter. A US recovery that is robust enough to survive the withdrawal of stimulus tied to tax increases in January and the sequester in March has helped the Dow Jones Industrial Average breach 15,000 for the first time. It has bolstered consumer confidence to a five-year high, reduced the jobless rate to 7.5% from a post-crisis high of 10.1% and is driving a housing revival.
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