The U.S. budget deficit last month narrowed more than economists forecast as rising employment contributed to the strongest October revenue on record.

Spending exceeded receipts by $91.6 billion last month, compared with a $120 billion shortfall in October 2012, the U.S. Treasury Department said today in Washington. The median estimate in a Bloomberg survey of 16 economists was for a $102 billion deficit last month. Monthly revenue jumped about 8 percent from a year earlier while outlays dropped 4.5 percent, the report showed.

Stronger hiring has helped reduce the country’s deficit as a share of gross domestic product by more than half in the past four years, narrowing it from a record $1.42 trillion in 2009. The Treasury last month said the shortfall in the 12 months ended Sept. 30 was 4.1 percent of GDP, and the Congressional Budget Office has projected it will decline to 3.3 percent of the economy this fiscal year and 2.1 percent in 2015.

“I expect the deficit to continue to shrink both in absolute terms and as a share of the economy,” said Joseph Lavorgna, chief U.S. economist for Deutsche Bank Securities Inc.

Today’s report showed revenue increased to $198.9 billion last month from $184.3 billion in October 2012. Spending totaled $290.5 billion compared with $304.3 billion a year earlier, it showed.

Less spending

Rising employment and a payroll tax increase are lifting receipts, while the across-the-board federal budget cuts known as sequestration combined with lower unemployment-benefit payments to keep spending in check.

October was marked by a partial government shutdown during the first half of the month and partisan wrangling over the federal debt ceiling, which was suspended Oct. 17, the day the Treasury had projected its borrowing authority would run out. The agreement to reopen operations created a House-Senate conference committee with a Dec. 13 deadline to offer ways to resolve the fiscal disputes between the parties.

“The government shutdown effect was small,” Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, said before the budget numbers were released. Because federal workers were paid in full for the days they didn’t work, there wasn’t “a major outlay impact,” he said.

The deficit of $680.3 billion in the fiscal year ended Sept. 30 was the smallest in five years, as employment gains and higher taxes propelled revenue to a record while spending fell by the most since the Eisenhower administration.

Political impasse

Lawmakers are at odds over whether ending some tax breaks for wealthier Americans should be part of a deal to replace the automatic spending cuts approved in 2011 that have trimmed funding for defense and domestic programs. The work could be complicated by a request from House and Senate appropriators to agree on a spending target by Dec. 2.

In a two-hour meeting today, the conference committee showed few signs that the two sides are bridging longstanding differences over taxes and spending on entitlement programs.

The conference panel’s leaders — Sen. Patty Murray, D-Wash., and Rep. Paul Ryan, R-Wis. — are lowering expectations for a bargain to trim the nation’s $17 trillion debt. Both lawmakers, chairmen of their chambers’ budget committees, have instead focused on replacing the automatic cuts known as sequestration that are reducing funds for education, transportation and medical research.

Long-term challenges

While hiring gains have helped the budget in the short term, the country faces long-term challenges deciding how to reduce spending and raise revenue, according to CBO Director Douglas Elmendorf.

“For the long term, the prolonged weakness in the economy has lowered its productive capacity for years to come, while the aging of the population, the expansion of federal subsidies for health insurance, and rising health care costs will put increasing pressure on the budget,” Elmendorf wrote in a blog posting after testifying at the conference committee meeting today.

The CBO today released a report outlining 103 options lawmakers can consider to cut spending or raise revenue in the next decade.

Economic data from the period of the shutdown have been mixed. Employers last month added 204,000 workers, topping the most optimistic forecast in a survey of economists, the Labor Department said Nov. 8. The Thomson Reuters/University of Michigan preliminary consumer sentiment index for November dropped to 72, the weakest since December 2011, from 73.2 in October.

Traveling this week in Asia, Treasury Secretary Jacob J. Lew said he doubts U.S. lawmakers will want to go through another fiscal impasse like the one that occurred a month ago.

“It is, I think, very likely that we will not see that kind of a tactic again,” Lew told public broadcaster NHK in Tokyo yesterday. “I take heart from the things that I’m told privately, and from the public statements, particularly from Republican leaders, who make it clear that they’ve learned a lesson and that they don’t want this to happen again.”