Management's Discussion & Analysis

The Government's Financial Position and Condition

This Financial Report presents the government’s financial position at the end of the fiscal year, explains how and why the financial position changed during the year, and discusses the government’s financial condition and how it may change in the future.

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Table 1 on the previous page and the following summarize the federal government’s financial position:

• This Financial Report includes discussion and analysis of the effects that the federal government’s response to the COVID-19 pandemic continued to have on the government’s financial position during FY 2022.
• During FY 2022, the budget deficit decreased by $1.4 trillion (50.4 percent) to $1.4 trillion and net operating cost increased by $1.1 trillion (34.8 percent) to $4.2 trillion.
• Net operating cost increased due largely to significant increases in non-cash costs (primarily losses stemming from changes in assumptions affecting cost and liability estimates for the government’s employee and veteran benefits programs). These amounts do not affect the current year budget deficit.
• The government’s gross costs of $7.4 trillion, less $531.1 billion in revenues earned for goods and services provided to the public (e.g., Medicare premiums, national park entry fees, and postal service fees), plus $2.2 trillion in net losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the government’s net cost of $9.1 trillion, an increase of $1.7 trillion or 23.8 percent compared to FY 2021.
• Deducting $4.9 trillion in tax and other revenues results in a “bottom line” net operating cost of $4.2 trillion for FY 2022, an increase of $1.1 trillion or 34.8 percent compared to FY 2021.
• Comparing total FY 2022 government assets of $5.0 trillion (including $1.4 trillion of loans receivable, net and $1.2 trillion of PP&E) to total liabilities of $39.0 trillion (including $24.3 trillion in federal debt and interest payable³, and $12.8 trillion of federal employee and veteran benefits payable) yields a negative net position of $34.1 trillion.
• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2022, debt held by the public, excluding accrued interest, was $24.3 trillion. This amount, plus intra-governmental debt ($6.7 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2022, the government’s total debt subject to the debt limit was $30.9 trillion. Congress and the President most recently increased the debt limit by $480.0 billion in October 2021 and by $2.5 trillion in December 2021.

This Financial Report also contains information about projected impacts on the government’s future financial condition. Under federal accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered liabilities of the government. From Table 1:

• The SLTFP shows that the PV⁴ of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc., over the next 75 years, under current policy, is projected to exceed the PV of total receipts by $79.5 trillion (total federal non-interest net expenditures from Table 1).
• The SOSI shows that the PV of the government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues⁵ by about $75.9 trillion, a $4.9 trillion increase over 2021 social insurance projections.
• The Social Insurance and Total Federal Non-Interest Net Expenditures measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance spending, neither of which is included in the SOSI.

The government’s current financial position and long-term financial condition can be evaluated both in dollar terms and in relation to the economy as a whole. GDP is a measure of the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs. For example:

• The budget deficit decreased from $2.8 trillion in FY 2021 to $1.4 trillion in FY 2022. The deficit-to-GDP ratio similarly decreased from 12.4 percent in FY 2021 to 5.5 percent in 2022.
• The budget deficit is primarily financed through borrowing from the public. As of September 30, 2022, the $24.3 trillion in debt held by the public, excluding accrued interest, equates to 97.0 percent of GDP.
• The 2022 SOSI projection of $75.9 trillion net PV excess of expenditures over receipts over 75 years represents about 4.3 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $79.5 trillion from the SLTFP represents 4.2 percent of GDP over 75 years. As discussed in this Financial Report, changes in these projections can, in turn, have a significant impact on projected debt as a percent of GDP.
• To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 4.9 percent of GDP on average is needed (6.2 percent of GDP on average in the 2021 projections). The fiscal gap in the 2022 projections represents 26.0 percent of 75-year PV receipts and 21.2 percent of 75-year PV non-interest spending.

FY 2022 Financial Statement Audit Results

For FY 2022, GAO issued a disclaimer of audit opinion on the accrual-based, government-wide financial statements, as it has for the past 25 years, due to certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work. In addition, GAO issued a disclaimer of opinion on the sustainability financial statements due to significant uncertainties primarily related to the achievement of projected reductions in Medicare cost growth and certain other limitations. GAO’s audit report on page 222 of this Financial Report, discusses GAO’s findings.

In FY 2022, 20 of the 24 entities required to issue audited financial statements under the CFO Act received unmodified audit opinions, as did 13 of 16 additional significant consolidation entities (see Table 10 and Appendix A).⁶

The Government-wide Reporting Entity

This Financial Report includes the financial status and activities of the executive, legislative, and judicial branches of the federal government. SFFAS No. 47, Reporting Entity, provides criteria for identifying organizations that are consolidation entities, disclosure entities, and related parties. Such criteria are summarized in Note 1.A, Significant Accounting Policies, Reporting Entity, and in Appendix A, which lists the entities included in this Financial Report by these categories. The assets, liabilities, results of operations, and related activity for consolidation entities are consolidated in the financial statements.

Fannie Mae and Freddie Mac meet the criteria for disclosure entities and, consequently, are not consolidated into the government’s financial statements. However, the values of the investments in such entities, changes in value, and related activity with these entities are included in the consolidated financial statements. The FR System and the SPVs are disclosure entities and are not consolidated into the government’s financial statements. See Note 1.A and Note 27—Disclosure Entities and Related Parties for additional information. In addition, per SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary funds are not consolidated in the government financial statements.⁷

Most significant consolidation entities prepare financial statements that include financial and performance related information, as well as Annual Performance Reports. More information may be obtained from entities’ websites indicated in Appendix A and at https://www.performance.gov/.

The following pages contain a more detailed discussion of the government’s financial results for FY 2022, the budget, the economy, the debt, and a long-term perspective about fiscal sustainability, including the government’s ability to meet its social insurance benefits obligations. The information in this Financial Report, when combined with the Budget, collectively presents information on the government’s financial position and condition.

Accounting Differences Between the Budget and the Financial Report

Each year, the Administration issues two reports that detail the government’s financial results: the Budget and this Financial Report. The exhibit on the following page provides the key characteristics and differences between the two documents.

Budget Deficit vs. Net Operating Cost

Three key components of the U.S. budget process are: 1) appropriations; 2) obligations; and 3) outlays. An appropriation is a provision of law authorizing the expenditure of funds for a given purpose. Rescissions and cancellations are reductions in law of budgetary resources. They are considered permanent reductions unless legislation clearly indicates that the reduction is temporary. Once funds are appropriated by Congress, Treasury issues warrants that officially establish the amounts available to be obligated and spent (i.e., expended or outlayed) by each agency. An agency’s obligation of funds is a binding agreement to outlay funds for a particular purpose immediately or in the future. The budget deficit is measured as the excess of outlays, or payments made by the government, over receipts, or cash received by the government.

Net operating cost, calculated on an accrual basis, is the excess of costs (what the government has incurred but has not necessarily paid) over revenues (what the government has collected and expects to collect but has not necessarily received). As shown in Chart 1, net operating cost typically exceeds the budget deficit due largely to the inclusion of cost accruals associated with increases in estimated liabilities for the government’s postemployment benefit programs for its military and civilian employees and veterans as well as environmental liabilities.

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The government’s primarily cash-based⁹ budget deficit decreased by $1.4 trillion (50.4 percent) from approximately $2.8 trillion in FY 2021 to about $1.4 trillion in FY 2022 due to an increase in receipts combined with a decrease in outlays in FY 2022. The $850.1 billion (21.0 percent) increase in receipts can be attributed primarily to higher individual and corporation income tax collections and social insurance and retirement receipts, along with increases in most other sources of receipts. Outlays decreased $550.0 billion (8.1 percent). The decrease in part reflects reductions in COVID-19 related spending, including unemployment insurance and SBA programs. Outlays for some other categories of spending increased, including student loans, Medicare, and net interest.¹⁰

With some adjustments, Treasury’s September 2022 MTS provides fiscal year-end receipts, spending, and deficit information for this Report. The MTS presents primarily cash-based spending, or outlays, for the fiscal year in a number of ways, including by month, by entity, and by budget function classification. The federal budget is divided into approximately 20 categories, or budget functions, as a means of organizing federal spending by primary purpose (e.g., National Defense, Transportation, and Health). Multiple entities may contribute to one or more budget functions, and a single budget function may be associated with only one entity. For example, DOD, DHS, DOE, and multiple other entities administer programs that are critical to the broader functional classification of National Defense. DOD, OPM, and many other entities also administer Income Security programs (e.g., retirement benefits, housing, financial assistance). By comparison, the Medicare program is a budget function category unto itself and is administered exclusively at the federal level by HHS. Federal spending information by budget function and other categorizations may be found in the September 2022 MTS.¹¹

The government’s largely accrual-based net operating cost increased by $1.1 trillion (34.8 percent) to $4.2 trillion during FY 2022. As explained below, net operating costs are affected by changes in both revenues and costs.

The Reconciliation of Net Operating Cost and Budget Deficit statement articulates the relationship between the government’s accrual-based net operating cost and the primarily cash-based budget deficit. The difference between the government’s budget deficit and net operating cost is typically impacted by many variables. For example, from Table 2, nearly 95 percent of the $2.8 trillion net difference for FY 2022 is attributable to a $2.6 trillion net increase in liabilities for federal employee and veteran benefits payable (see Note 13—Federal Employee and Veteran Benefits Payable). Other differences include: 1) a $45.2 billion increase in advances from others and deferred revenue (see Note 17—Advances From Others and Deferred Revenue); 2) a $71.3 billion decrease in advances and prepayments made by the federal government (see Note 9—Advances and Prepayments); 3) a $65.5 billion decrease in net taxes receivable (see Note 3—Accounts Receivable, Net); and 4) a $58.5 billion timing difference between when credit reform costs are recorded in the budget versus net operating cost (see Note 4—Loans Receivable, Net and Loan Guarantee Liabilities).

Net operating cost increased due largely to significant increases in non-cash costs (primarily losses stemming from changes in assumptions affecting cost and liability estimates for the government’s employee and veteran benefits programs). These amounts do not affect the current year budget deficit.

The Government’s Net Position: “Where We Are”

The government’s financial position and condition have traditionally been expressed through the Budget, focusing on surpluses, deficits, and debt. However, this primarily cash-based discussion of the government’s net outlays (deficit) or net receipts (surplus) tells only part of the story. The government’s accrual-based net position, (the difference between its assets and liabilities, adjusted for unmatched transactions and balances), and its “bottom line” net operating cost (the difference between its revenues and costs) are also key financial indicators.

Financial Effects of the Federal Government’s Pandemic Response

On March 11, 2020, a novel strain of the Coronavirus (COVID-19) was declared a pandemic by the WHO and precipitated a severe global health and economic crisis. A national emergency was declared in the U.S. on March 13, 2020. Since then, the federal government has taken broad action, including enacting multiple laws providing approximately $4.5 trillion across the government, to protect public health and economic stability from the effects of the unprecedented pandemic. These actions have included but are not limited to:

• Treasury funding has supported several efforts, including provision of refundable tax credits (recovery rebates or EIP), payments to state, local, territorial, and tribal governments to cover eligible costs, and investments in SPVs established by the Federal Reserve Board through the FRBNY and FRBB to enhance the liquidity of the U.S. financial system.
• SBA funding provided emergency and immediate economic relief and assistance through disaster response programs funded by COVID-19 appropriations. These programs include: 1) PPP; 2) CARES Act Debt Relief; 3) EIDL grants; 4) the Business Loan Fee Waiver and Debt Relief program; 5) the Targeted EIDL and Supplemental EIDL Advance programs; 6) the Restaurant Revitalization program; 7) the Shuttered Venue Operators Grants program; and 8) the Community Navigator Pilot program.
• HHS’s COVID-19 appropriations provided support testing, contact tracing, containment, mitigation, to monitor and suppress the spread of COVID-19, as well as support for COVID-19 vaccination programs and addressing disparities in obtaining quality healthcare. Programs also assisted households with paying for drinking water and wastewater services, and provide direct payment to participating eligible pharmacies and healthcare providers for up to eight free over-the-counter COVID-19 tests.
• Education has provided a variety of pandemic-oriented programs primarily through grants. COVID-19 relief legislation and administrative actions also provided support for student loan borrowers primarily by temporarily suspending nearly all federal loan payments, followed by announced broad-based debt relief.
• Several DOT programs received COVID-19 appropriations in support of maintaining and continuing the operations and business needs of various transportation systems.
• DHS’s COVID-19 appropriations provided funding for several programs serviced by the Customs and Border Protection, Cybersecurity and Infrastructure Security Agency, Countering Weapons of Mass Destruction Office, and FEMA.

The corresponding financial effects of the government’s response to the pandemic have been broad, impacting many agencies in a variety of ways and to varying degrees. The following include brief discussions of some of the continuing effects of the pandemic on the government’s financial results for FY 2022. Please refer to Note 29—COVID-19 Activity and other disclosures in this Financial Report, as well as in the individual entities’ financial statements for more information.

Costs and Revenues

The government’s Statement of Operations and Changes in Net Position, much like a corporation’s income statement, shows the government’s “bottom line” and its impact on net position (i.e., assets net of liabilities, adjusted for unmatched transactions and balances). To derive the government’s “bottom line” net operating cost, the Statement of Net Cost first shows how much it costs to operate the federal government, recognizing expenses when incurred, regardless of when payment is made (accrual basis). It shows the derivation of the government’s net cost or the net of: 1) gross costs, or the costs of goods produced and services rendered by the government; 2) the earned revenues generated by those goods and services during the fiscal year; and 3) gains or losses from changes in actuarial assumptions used to estimate certain liabilities. This amount, in turn, is offset against the government’s taxes and other revenue reported in the Statement of Operations and Changes in Net Position to calculate the “bottom line” or net operating cost.

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Table 3 shows that the government’s “bottom line” net operating cost increased $1.1 trillion (34.8 percent) during 2022 from $3.1 trillion to $4.2 trillion. This increase is due mostly to a $1.7 trillion (23.8 percent) increase in entity net costs, which more than offset a $670.0 billion (15.7 percent) increase in tax and other revenues over the past fiscal year as discussed in the following.

Assets and Liabilities

The government’s net position at the end of the fiscal year is derived by netting the government’s assets against its liabilities, as presented in the Balance Sheet (summarized in Table 4).¹² The Balance Sheet does not include the financial value of the government’s sovereign powers to tax, regulate commerce, or set monetary policy or value of nonoperational resources of the government, such as national and natural resources, for which the government is a steward. In addition, as is the case with the Statement of Operations and Changes in Net Position, the Balance Sheet includes a separate presentation of the portion of net position related to funds from dedicated collections. Moreover, the government’s exposures are broader than the liabilities presented on the Balance Sheet. The government’s future social insurance exposures (e.g., Medicare and Social Security) as well as other fiscal projections, commitments and contingencies, are reported in separate statements and disclosures. This information is discussed later in this MD&A section, the financial statements, and RSI sections of this Financial Report.

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The federal government’s direct loans and loan guarantee programs are used to promote the nation’s welfare by making financing available to segments of the population not served adequately by non-federal institutions, or otherwise providing for certain activities or investments. For those unable to afford credit at the market rate, federal credit programs provide subsidies in the form of direct loans offered at an interest rate lower than the market rate. For those to whom non-federal financial institutions are reluctant to grant credit because of the high risk involved, federal credit programs guarantee the payment of these non-federal loans and absorb the cost of defaults. For example, Education supports individuals engaged in education programs through a variety of student loan, grant and other assistance programs. USDA administers loan programs to support the nation’s farming and agriculture community. HUD loan programs support affordable homeownership, as well as the construction and rehabilitation of housing projects for the elderly and persons with disabilities. SBA loan programs enable the establishment and vitality of small businesses and assist in the economic recovery of communities after disasters. The federal government’s direct loan portfolio decreased by $216.9 billion (13.1 percent) to $1.4 trillion during FY 2022, with Education and SBA together accounting for nearly 80 percent of the total. The outstanding loan guarantee liability decreased by $224.3 billion. Significant changes to the federal government’s loans receivable, net, and loan guarantees liability, as discussed in Note 4, include:

• Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The William D. Ford Federal Direct Loan Program (referred to as the Direct Loan Program), was established in FY 1994 and offered four types of educational loans: Stafford, Unsubsidized Stafford, Parent Loan for Undergraduate Students, and consolidation loans. While Education direct loan disbursements to eligible borrowers increased during FY 2022 from approximately $104.8 billion to approximately $120.4 billion, Education’s direct loans receivable, net decreased during the same period from $1.1 trillion to $816.6 billion (56.9 percent of total loans receivable, net). The COVID-19 relief legislation and administrative actions provided support for student loan borrowers by temporarily suspending nearly all federal student loan payments interest free. In addition, all federal wage garnishments and collections actions for borrowers with federally held loans in default were halted. Education announced broad-based debt relief during FY 2022 to address the financial harms of the pandemic by smoothing the transition back to repayment and helping borrowers at highest risk of delinquencies or default once payments resume. Borrowers with loans held by Education who received a Pell Grant in college and meet the specified income limits are eligible for up to $20,000 in debt relief, while non-Pell Grant recipients who meet the specified income limits are eligible for up to $10,000 in relief. A federal court order stayed the implementation of the debt relief; the matter is currently under review before the U.S. Supreme Court. See Note 30—Subsequent Events for more information.
• SBA’s credit program receivables comprise business and disaster direct loans and defaulted business loans purchased per the terms of SBA’s loan guaranty programs, offset by an allowance for related program subsidy costs. The CARES Act provides funding for SBA to offer low-interest EIDL for working capital to small businesses suffering substantial economic injury as a result of COVID-19 that can be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact. SBA’s credit program receivables increased $76.1 billion to $321.5 billion during FY 2022, stemming from a $117.8 billion increase in direct disaster loans as a direct result of CARES Act-funded loans. The loan guarantee PPP provides loan forgiveness for amounts used for eligible expenses for payroll and benefit costs, interest on mortgages, and rent, and utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. The loan guarantee liability for Small Business Loan Programs which includes the PPP decreased by $202.1 billion primarily due to PPP loan forgiveness to lenders. Refer to SBA’s financial statements for additional information on each specific loan program.

Federal government general PP&E includes many of the physical resources that are vital to the federal government’s ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general-purpose land. DOD comprises approximately 68.0 percent of the government’s reported general PP&E of $1.2 trillion as of September 30, 2022. See Note 6—General Property, Plant, and Equipment, Net.

“Other” assets of $1.0 trillion in Table 4 and Chart 5 includes: 1) $356.3 billion in accounts receivable, net; 2) $298.1 billion in “Advances and Prepayments”; and 3) $223.7 billion in investments in GSEs. Treasury comprises approximately 66.8 percent of the government’s reported accounts receivable, net, mostly in the form of reported taxes receivable, which consist of unpaid assessments due from taxpayers, unpaid taxes related to IRC section 965, and deferred payments for employer’s share of FICA taxes pursuant to the CARES Act. Taxes receivable, net, decreased by $65.5 billion during FY 2022, primarily due to the 50 percent year one installment payment of the deferred employer portion of FICA Social Security taxes. (See Note 3—Accounts Receivable, Net). Advances and Prepayments represent funds disbursed in contemplation of the future performance of services, receipt of goods, the incurrence of expenditures, or the receipt of other assets. The $71.2 billion decrease in this amount was largely attributable to: 1) additional liquidation by Treasury of advances paid to state, local, territorial, and tribal governments pursuant COVID-19 legislation; and 2) collections by HHS of COVID-19 Accelerated & Advance Payment program advances (See Note 9—Advances and Prepayments). Investments in GSEs refers to actions taken by Treasury in the wake of the 2008 financial crisis to maintain the solvency of the GSEs (Fannie Mae and Freddie Mac) so they can continue to fulfill their vital roles in the mortgage market while the Administration and Congress determine what structural changes should be made to the housing finance system. (See Note 8—Investment in GSEs).

Please refer to Note 29—COVID-19 Activity, as well as the FY 2022 entities’ financial statements for additional information about the pandemic’s continued effects on the federal government’s assets and liabilities over the past fiscal year.

In addition, as indicated earlier, Note 30—Subsequent Events, discusses the financial effects of significant events that occurred following the end of the fiscal year, but prior to issuance of this Financial Report. These and other subsequent events and their effects are discussed in Note 30.

Liabilities

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The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 7) compares the country’s debt to the size of its economy, making this measure sensitive to changes in both. Over time, the debt-to-GDP ratio has varied widely:

• For most of the nation’s history, through the first half of the 20th century, the debt-to-GDP ratio has tended to increase during wartime and decline during peacetime.
• Chart 7 shows that wartime spending and borrowing pushed the debt-to-GDP ratio to an all-time high of 106 percent in 1946, soon after the end of World War II, but it decreased rapidly in the post-war years.
• The ratio grew rapidly from the mid-1970s until the early 1990s. Strong economic growth and fundamental fiscal decisions, including measures to reduce the federal deficit and implementation of binding PAYGO rules (which require that new tax or spending laws not add to the deficit), generated a significant decline in the debt-to-GDP ratio, from a peak of 48 percent in FYs 1993-1995, to 31 percent in 2001.
• During the first decade of the 21st century, PAYGO rules were allowed to lapse, significant tax cuts were implemented, entitlements were expanded, and spending related to defense and homeland security increased. By September 2008, the debt-to-GDP ratio was 39 percent of GDP.
• PAYGO rules were reinstated in 2010, but the extraordinary demands of the 2008 economic and financial crisis and the consequent actions taken by the federal government, combined with slower economic growth in the wake of the crisis, pushed the debt-to-GDP ratio up to 74 percent by the end of FY 2014.
• The debt was approximately 97.0 percent of GDP at the end of FY 2022. This ratio decreased during FY 2022 because GDP,¹⁵ which increased as the economy continued to recover from the effects of the pandemic, grew faster than the debt.¹⁶ From Chart 7, since 1940, the average debt-to-GDP ratio is 50 percent.

The Economy in FY 2022

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A consideration of U.S. economic performance provides useful context when evaluating the government’s financial statements. Over the last three fiscal years, the economy has been deeply affected by the COVID-19 global pandemic. But in the most recent fiscal year, Russia’s illegal invasion of Ukraine in late February 2022 also caused significant disruption in commodities markets, including a sizeable run-up in energy prices. With the help of the U.S. government’s extensive measures to protect consumers and businesses and restore growth, the number of payroll jobs at the end of FY 2022 exceeded the level in February 2020. In addition, employment growth continued to be strong and activity in the current economic expansion has continued after a brisk recovery, albeit accompanied by price pressures. The disruption in commodities markets contributed to inflation, but actions by the Administration, including release of oil from the Strategic Petroleum Reserve, helped to mitigate energy price inflation.

After contracting in FY 2020, the economy bounced back in FY 2021, supported by the $2.2 trillion CARES Act, the widespread distribution of vaccines, and the reopening of industries that were hardest hit by the pandemic. Another economic aid package of roughly $900 billion was passed in December 2020, which funded smaller EIPs and a second draw of PPP loans for small businesses. Then early in calendar year 2021, the ARP provided an additional $1.9 trillion in economic aid, primarily through EIPs and direct aid to economically vulnerable low-to middle-income families. It also assisted state and local governments, provided additional funding for addressing COVID-19 infections and vaccinating the population, created new loans and grants for small businesses, and ended the deadline for PPP applications. As a result, households’ balance sheets were healthy, and real (i.e., inflation-adjusted) GDP rose 5.0 percent over the four quarters of FY 2021, the strongest pace of growth since FY 1984.

In FY 2022, the economy displayed remarkable resilience in the wake of the additional challenges posed by Russia’s invasion of Ukraine. As summarized in Table 5, the real GDP grew by 1.9 percent over the four quarters of FY 2022.

Business fixed investment and PCE continued to support growth in FY 2022, while inventory investment and net exports rebounded, making strong contributions as well. But after supporting growth in the previous fiscal year, residential investment and government spending all declined. Over the four quarters of FY 2022, business fixed investment expanded by 3.5 percent, slowing from a gain of 7.6 percent over the previous four quarters. PCE grew 2.1 percent, returning to a more normal pace after outsized gains in the previous two fiscal years due to support from multiple federal financial programs. Inventory investment contributed 0.6 percentage points to growth in FY 2022, following a drag of 0.3 percentage points in FY 2021, as firms rebuilt depleted inventories. Net exports added 0.2 percentage points to growth in FY 2022, after subtracting 1.1 percentage points in FY 2021.

After providing strong support to the economy over the previous two fiscal years, residential investment growth turned negative in FY 2022, as rising mortgage rates and double-digit increases in home price indexes weighed on housing affordability. Residential investment declined 12.9 percent in FY 2022, after rising by 7.5 percent the previous fiscal year. As pandemic-related financial support programs continued to unwind, government spending declined 0.5 percent in the latest fiscal year, after increasing by 0.7 percent in FY 2021.

In labor markets, the economy recovered the number of jobs lost during March and April 2020. At that time, the imposition of stay-at-home orders and mandated business closures contributed to a loss of more than 22 million payroll jobs and an increase in the unemployment rate to a post-World War II high of 14.7 percent. Over the ensuing months and years job creation was unexpectedly robust, and in the latest fiscal year, labor markets have tightened to a historic degree, as labor supply remained constrained and labor demand, as measured by job openings, surged to new heights. On average, the economy added 473,000 payroll jobs per month in FY 2022, nearly matching the monthly average of 475,000 in FY 2021. By the end of FY 2022, the unemployment rate had dropped 11.2 percentage points from the peak to 3.5 percent, returning to the half-century and pre-pandemic low.

Although inflation had slowed in FY 2020 at the headline and core (which excludes food and energy) levels, both accelerated in FY 2021. In the latest fiscal year, inflation picked up more, reflecting in part higher demand for durable goods and supply-chain disruptions that reduced the availability of goods. Later in the year, demand for services started to recover, though the full rotation to the pre-pandemic balance between goods and services remains elusive, and food and energy price pressures increased related to Russia’s invasion of Ukraine. The CPI rose 8.2 percent over the 12 months of FY 2022, picking up from the 5.4 percent pace during the previous fiscal year. Core inflation was 6.6 percent over the fiscal year ending September 2022, accelerating from the 4.0 percent pace during FY 2021.

Higher inflation offset solid gains in nominal income and wages, eroding purchasing power in real terms. Real disposable personal income decreased 3.3 percent over the 12 months of FY 2022, after declining 1.4 percent during the previous fiscal year. The pace of nominal average hourly earnings growth for production and non-supervisory workers was relatively strong in FY 2021 at 5.9 percent, and the gain remained steady at 5.8 percent in the latest fiscal year. But faster inflation more than offset the gain, resulting in an outright drop in real wages. Overall, real average hourly earnings declined 2.5 percent during FY 2022, after a slight decline of 0.1 percent the previous fiscal year. Nonfarm labor productivity decreased 1.2 percent over the four quarters of FY 2022, after declining 0.2 percent during FY 2021. The latest fiscal year saw a 3.4 percent advance in hours worked as employment continued to pick up, which more than offset a 1.9 percent increase in output. Over the four quarters of FY 2021, gains in hours worked and output were about the same, each in excess of 6.0 percent.

Footnotes

³ On the government’s Balance Sheet, federal debt and interest payable consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government. (Back to Content)

⁴ PVs recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To calculate a PV, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. (Back to Content)

⁵ Social Security is funded by the payroll taxes and revenue from taxation of benefits. Medicare Part A is funded by the payroll taxes, revenue from taxation of benefits, and premiums that support those programs. Medicare Parts B and D are primarily financed by transfers from the General Fund, which are presented, and by accounting convention, eliminated in the SOSI. For the FYs 2022 and 2021 SOSI, the amounts eliminated totaled $47.5 trillion and $43.2 trillion, respectively. (Back to Content)

⁶ The 20 entities include the HHS, which received disclaimers of opinions on its 2022, 2021, 2020, 2019, and 2018 SOSI and its 2022 and 2021 SCSIA. The 13 entities include the FDIC, the NCUA, and the FCSIC, which operate on a calendar year basis (December 31 year-end). Statistic reflects 2021 audit results for these organizations if 2022 results are not available. (Back to Content)

⁷ See Note 23—Fiduciary Activities.(Back to Content)

⁸ Under GAAP, most U.S . government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). The SOSI presents the PV of the estimated future revenues and expenditures for scheduled benefits over the next 75 years for the Social Security, Medicare, RRP; and 25 years for the Black Lung program. The SLTFP presents the 75-year PV of the projected future receipts and non-interest spending for the federal government. (Back to Content)

⁹ Interest outlays on Treasury debt held by the public are recorded in the budget when interest accrues, not when the interest payment is made. For federal credit programs, outlays are recorded when loans are disbursed, in an amount representing the PV cost to the government, commonly referred to as credit subsidy cost. Credit subsidy cost excludes administrative costs. (Back to Content)

¹⁰ 10/21/22 press release – Joint Statement of Janet L. Yellen, Secretary of the Treasury, and Shalanda D. Young, Director of the Office of Management and Budget, on Budget Results for Fiscal Year 2022. Note that some amounts in this Financial Report reflect updates subsequent to publication of the press release. (Back to Content)

¹¹ Final MTS for FY 2022 through September 30, 2022 and Other Periods. (Back to Content)

¹² As shown in Table 4, the government’s Balance Sheet includes an adjustment for unmatched transactions and balances, which represent unresolved differences in intra-governmental activity and balances between federal entities. These amounts are described in greater detail in the Other Information section of this Financial Report. (Back to Content)

¹³ For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PP&E. Stewardship assets are comprised of stewardship land and heritage assets. Stewardship land primarily consists of public domain land (e.g., national parks, wildlife refuges). Heritage assets include national monuments and historical sites that among other characteristics are of historical, natural, cultural, educational, or artistic significance. See Note 26—Stewardship PP&E. (Back to Content)

¹⁴ Beginning in FY 2021 and continuing into FY 2022, Treasury faced a delay in raising the statutory debt limit that required it to depart from its normal debt management procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. During these periods, extraordinary measures taken by Treasury have resulted in federal debt securities not being issued to certain federal government accounts with the securities being restored including lost interest to the affected federal government accounts subsequent to the end of the delay period. A delay in raising the statutory debt limit occurred from August 1, 2021, through September 30, 2021. During the period of August 2, 2021, through September 30, 2021, Treasury departed from their normal debt management operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On October 14, 2021, P.L. 117-50 was enacted which raised the statutory debt limit by $480.0 billion, from $28,401.5 billion to $28,881.5 billion. Even with this increase, extraordinary measures continued in order for Treasury to manage below the debt limit. On December 16, 2021, Congress and the President increased the debt limit by $2.5 trillion to $31.4 trillion with the enactment of P.L. 117-73. On this date, Treasury discontinued its use of extraordinary measures and resumed normal debt management operations. On January 19, 2023, Treasury began taking extraordinary measures. See Note 12—Federal Debt and Interest Payable and Note 30—Subsequent Events for additional information. (Back to Content)

¹⁵ GDP, in this context, refers to nominal GDP. (Back to Content)

¹⁶ The increase in debt of $2.0 trillion was greater than the FY 2022 deficit of $1.4 trillion primarily because of increases in the government’s cash balance, as well as the restoration of uninvested principal as discussed in Note 12—Federal Debt and Interest Payable. (Back to Content)