First Effects of DOGE Spending Cuts

President Trump's new Department of Government Efficiency (DOGE) is attempting to find wasteful spending and other problems throughout the federal government.  We are not yet 3 full months into the current presidential term, so it is hard to know exactly what successes they may be having.  But there are already some signs of lowered spending.

Every month, the Treasury Department publishes its Monthly Treasury Statement (MTS), detailing broad monthly numbers on tax receipts and federal spending.  This week's chart focuses just on the spending numbers, and what is remarkable is that spending in March 2025 is actually down. 

The monthly spending numbers are rather lumpy, although not quite as lumpy as the revenue numbers which get distorted each month by quarterly estimated tax payments among other seasonal factors.  Up through February 2025, the monthly FY 2025 spending (red line) has been outpacing prior fiscal years.  That is actually normal, as inflation drives up federal expenditures naturally every year.

But the latest MTS just out this week shows that March 2025 spending is the lowest month thus far in FY 2025, and it is below the last 2 fiscal years' spending levels.  The $528 billion spent in March 2025 is almost down to the $507 billion spent in March 2022, 3 years before. 

The DOGE staff have not yet come out to take credit for this drop in federal spending, as one might imagine that they would.  Perhaps they will get around to that soon.  And there is not enough detail in the MTS to directly attribute the March spending drop to the efforts of the DOGE team to root out wasteful spending.  We will need more months' data to establish that linkage. 

If the drop really is attributable to DOGE cutting waste, that's great.  We need that.  With total federal debt above $36 trillion, we just cannot afford to spend money wastefully.  But as investors, we should understand that reducing federal spending is not bullish for stocks.  Here is a chart explaining why this is:

Each bar shows the annual deficit as a percentage of GDP.  And rather than using the official budget numbers to measure the deficit (because they have some funky accounting), I am measuring it as the annual change in the total federal debt.  The Treasury Department claimed to have had a budget surplus back in 2000, but the total debt still went up that year.  It is not a real surplus if you still have to borrow. 

Most of the time the federal government runs a deficit.  In fact the last time there was a real surplus was in 1960.  Those deficits are actually bullish, because having Congress print and spend more means that there is more extra money to help lift stock prices.  In the rare occasions that we have seen actual surpluses, they have been bearish for stock prices.

Part of the difficulty with the big stock market decline from 1929 to 1932 was that the Hoover administration saw troubles coming and tried to store up more fiscal reserves to handle that (point 1 in the chart).  This actually exacerbated the economic problems, something which economist John Maynard Keynes went on to write a bit about. 

During World War 2, the US government ran huge deficits, financed by the sale of War Bonds, and stock prices rose a lot.  Congress did a lot to pay back that wartime debt in 1947 and 1948 (point 2 in the chart), which made for a rough time in those years for the stock market. 

Point #3 was 1957-58, another rough time for the stock market.  My father Sherman McClellan was just graduating from college then, hoping to find a job in finance, but a 25% layoff of stockbrokers then made that really difficult.  He had to pursue other career options for several years before finally doing his pioneering stock market research in the late 1960s. 

Point #4 was 2000, which was the supposed "Clinton surplus" that was not actually a surplus.  The US got close, and that was actually enough to hurt the stock market.  The Bush43 tax cuts in 2001 and 2003 were not matched by spending cuts, causing the deficit (and the stock market) to rise.

Even wasteful government spending can be bullish.  It puts more money into the hands of investors, some of whom might not deserve to have that money, but they can still buy stocks with it.  So cutting government spending means cutting off that one avenue for pushing more money into the stock market.  If the Trump administration and the DOGE team really are successful at cutting spending, it is going to make for some difficult times for the stock market.  Those cuts are arguably needed given the size of the debt, but the cuts are not bullish.