Cisco’s announcement this week that they’ve yet to see the impact of government cuts hit their growth numbers maybe worried investors a little too much about the role of government spending in the U.S. economy.
State and local spending has actually been a drag on GDP growth in the U.S. for several years, according to Barclays Capital’s Dean Maki. It’s impact, historically, has been pretty negligible. “In fact, over the past 60 years, the largest annual drag from the state and local sector has been 0.3pp in 1980-81,” Maki writes.
This doesn’t mean the economy isn’t going to face any negative drag from the sector, but Maki points out it really doesn’t matter compared to the growth expected in the private sector.
From Barclays Capital’s Dean Maki:
Overall, we expect the state and local government sector to provide a similar drag on growth this year (0.1pp) to what it did in 2010, and we look for 10-15k per month in job cuts in this sector…Because we view the outlook for consumer and business spending as upbeat, we think it is reasonable to expect solid overall real GDP growth despite the headwinds coming from state and local governments.
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