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Economy in Brief

U.S. GDP Is Depressed By Public Sector Contraction
by Tom Moeller  July 30, 2012

There's no doubt that GDP growth has been moderate. Data released last week indicated that year-to-year growth of 2.2% ending in Q2'12 was about the same as during all of 2011 (1.8%) and 2010 (2.4%). After past deep recessions, growth of 5-to-7% was usual. Expansions in each economic sector has been depressed versus the norm. Consumption growth of 1.9% during the last four quarters compares to 5-to-7% after earlier downturns, residential investment is showing some life (10.7%) but that's a fraction of the norm and even business investment growth of 10.2% is subpar.

Nowhere is the comparison to past economic cycles more depressing than in the government sector which is 19% of the real economy. Real spending fell 1.4% last quarter (-2.4% y/y) and it's been down since 2010. Defense spending fell 4.0% during the last four quarters while state & local spending fell 1.8%, for an unprecedented two year decline. The best that can be said is that these rates of decline are more moderate than those in 2011.

Excluding the government sector, GDP growth is still subpar. Growth in private sector spending of 2.2% in Q2'12 pulled the y/y comparison to 3.3%. Nonetheless, the private sector is holding onto a modest recovery. Recently, however, forecasts for economic growth have been lowered. Much of that is due to a still-struggling private sector spending and a moribund public sector.

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail on the national accounts, including the new integrated economics accounts and the recently added GDP data for U.S. Territories. The Consensus estimates can be found in AS1REPNA.


Chained 2005 $, % AR Q2'12 Q1'12 Q4'11 Q2'12
2011 2010 2009
Gross Domestic Product 1.5 2.0 4.1 2.2 1.8 2.4 -3.1
Government Spending -1.4 -3.0 -2.2 -2.4 -3.1 0.6 3.7
Private Sector GDP 2.2 3.1 5.6 3.3 3.0 2.8 -4.7
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