WASHINGTON – The American budget deficit narrowed to $52.8 billion in July from a year earlier as tax revenue surged on higher incomes and business profits.

The deficit compares with a shortfall of $69.2 billion in July 2004 and was the smallest for the month since 2002, the Treasury reported today in Washington. Revenue rose 5.7% to a July record of $142.1 billion and spending fell 4.3%.

Higher earnings at energy and materials companies such as Dow Chemical Company and Halliburton Company led profit growth at American companies, which averaged 14% during the second quarter. The Treasury also benefits from increased personal income tax revenue with the creation of 3 million new jobs since January 2004.

“The big improvement has been on the corporate side,” an economist at FTN Financial in New York, Chris Low, said. “Earnings growth since the end of the recession has been terrific.”

The Treasury also has gained tax revenue on capital gains on home sales, Mr. Low said. “If people are buying and flipping houses – and they are – there’s probably some pretty hefty gains there.”

The Bush administration lowered its estimate for this year’s deficit to $333 billion in a mid-year estimate released July 13, less than the Office of Management and Budget’s previous forecast of a $427 billion deficit.

“The increased revenues and our spending restraint have led to good progress in reducing the federal deficit,” President Bush said in his weekly radio address August 6. Mr. Bush said tax cuts enacted in his first term helped fuel economic growth.

Best Buy Company, the largest American appliance retailer, said first-quarter profit jumped 49% on sales of MP3 music players, digital televisions, and notebook computers. CSX Corporation and Norfolk Southern Corporation, the two largest railroads in the eastern United States, said profits rose as they increased freight rates.

Record oil prices poured cash into the petroleum industry. Exxon Mobil Corporation, the world’s largest publicly traded oil producer, reported a second-quarter profit of $7.64 billion, third-highest in the company’s 123-year history.

America has run deficits each fiscal year since 2002 amid increased military spending, tax cuts, and rising costs for social services such as Medicare. From 1998 to 2001, the government reported annual budget surpluses.

So far this fiscal year, the government has reported a budget deficit of $302.6 billion, down from $396.3 billion at the same time in fiscal 2004, according to the Treasury’s statistics. The federal government’s fiscal year ends September 30. On June 15, the Treasury received a one-day record of $61 billion in tax receipts, including a one-day record $49 billion in corporate taxes.

Before yesterday’s report, the median forecast of 32 economists in a Bloomberg News survey called for a $57 billion budget deficit for July. In June, the government reported a $22.4 billion budget surplus. The budget usually shows a surplus in June because quarterly tax payments are due.

The independent Congressional Budget Office, which forecasts monthly budget figures, on August 4 forecast a July budget deficit of $58 billion, reflecting “impressive gains” in corporate tax income.

The government on August 1 said it plans to borrow a net $59 billion from July through September, $44 billion less than it originally predicted, as a surge in tax revenue cut the forecast for the annual budget deficit.

Federal spending last month totaled $194.9 billion. So far this fiscal year, defense spending totaled $386.9 billion, up from $364.4 billion a year earlier. Spending on the Medicare health program totaled $242 billion so far this fiscal year, up from $225.1 billion a year earlier.