Photo: Daniel Goodman / Business Insider
The first estimate of fourth quarter U.S. GDP just came in below analyst expectations, and a lot of that can be blamed on the government.Government spending fell 2.1% last quarter, the biggest drop since 1971 according to Bloomberg. In fact, other than imports, declines in state, local, and federal government spending were the primary factors working against GDP growth.
From the Bureau of labour Statistics release:
The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, residential fixed investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
Looking a little deeper into the numbers, the decline in federal government spending during the last quarter of the year was almost entirely comprised of the decline in defence spending, which fell 12.5%. Nondefense spending actually increased by 4.2% in the same period. Meanwhile, state and local spending declined by 2.6%.
It appears that we’re beginning to see what Federal Reserve Chairman Ben Bernanke said in his testimony in front of Congress back in November; cutting spending will have a direct impact on growth as the recovery continues. The choice between spending cuts and GDP growth is going to be something the Obama Administration will have to ponder a little deeper ahead of the elections this fall.