Strategic Briefing | 5.4.12 | Gov’t Spending & The Economy

What stimulus? Government is holding us back
Rex Nutting (MarketWatch) | May 4
Everyone’s worried that the economy may go over a “fiscal cliff” next year, but they’re missing something essential: We’ve been falling down a “fiscal hill” for two years already. After giving the economy a huge boost in 2009 and 2010, fiscal policy has become contractionary. Now that the private sector is on the mend, the lack of government spending is the biggest factor holding back the economy. And it could get worse.

Government cutbacks slice into economy’s growth
McClatchy Newspapers via Miami Herald | April 27
The U.S. economy’s weaker-than-expected growth in the first three months of this year renewed concerns Friday that the nation’s fragile recovery might stall. Much of the drag against growth reported Friday came from falling government spending, which raises the stakes in the difficult political fight ahead over narrowing federal budget deficits and lowering the national debt.
Economy’s Biggest Drag Right Now Is Government
Eileen Appelbaum (CEPR) via US News | April 27
The economy needs to grow by at least 2.5 percent just to keep unemployment from rising. Thus this latest figure on GDP growth does not auger well for the job market, which has seen a steady rise over the last few weeks in initial unemployment claims. In the face of weaker demand, Investment spending by business is slowing. Cutbacks in government spending at the federal as well as state and local levels are already hurting GDP growth. In the absence of federal revenue sharing with the states–the first time the federal government has not had such a program when unemployment is above 7 percent–state and local government expenditures have fallen for seven consecutive quarters.
Economy’s Biggest Drag Right Now Is Government
CNBC | April 27
Government has become its own worst enemy when it comes to the economy, with public spending putting a damper on growth that otherwise continues at a steady if unspectacular pace…. Before anyone starts thinking that Washington suddenly has gotten religion on spending, the bulk of the federal government cuts came from defense spending, which plunged 8.1 percent…. Government policymakers, then, face a dicey dilemma: Continue spending and risk falling further into the fiscal abyss, or cut back and deal with a prolonged future of uninspiring GDP numbers. “The dagger (from the GDP letdown) came from a second straight steep drop in federal government spending due to plunging defense outlays,” observed Pierpont economist Stephen Stanley. “Boy, wait until these budget cuts start to kick in.”
Defense Spending Plummets under Obama’s Budget
Heritage Foundation | May 2
Last night, President Obama visited Afghanistan and stood on the shoulders of the U.S. military to trumpet his foreign policy. But that military is being eviscerated under the president’s budget cuts, creating a hollow force and exacerbating today’s readiness crisis. Since President Obama took office, more than 50 major weapons programs at a value of more than $300 billion were cut or delayed. On top of this, the Administration told the military to cut almost $600 billion more over the next 15 years. And that’s before any cuts under the Budget Control Act take place.
Economy in U.S. Grew Less Than Forecast in First Quarter
Bloomberg | April 28
Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.2 percent annual rate [in the first quarter] after a 3 percent pace, Commerce Department figures showed yesterday in Washington… Government spending fell for a sixth straight quarter.
Economy slowed to 2.2% growth rate in Q1
USA Today | April 27
The economy grew at a 2.2% annual rate in the first quarter, the government said today, as a pickup in consumer spending was partly offset by shrinking government spending and sluggish private investment… If government spending had been unchanged in the quarter, the economy would have grown at a 2.8% rate, [said Joel Naroff, president of Naroff Economic Advisors] said.
Real Government Consumption Expenditures & Gross Investment
St. Louis Fed/U.S. Department of Commerce: Bureau of Economic Analysis