Government Still a Drag on US GDP

US GDP since 1950 has increased 3.2% at annual rate. Yet the current expansion has managed to deliver just 2.2%. Historically, on average, the government has contributed 0.6 percentage points to growth each quarter, but it has subtracted -0.2 percentage points in this expansion. Since the recession ended 19 quarters ago, the government has detracted from growth in 14 quarters, or 74% of the time, which is unprecedented in a post-war recovery. Without the government drag, private sector GDP has posted a solid annualized growth rate of 3.2%, right in line with the long-term performance of the overall economy.
Macro_140507_Gov't_GDP_0 Roughly half of the drag has been reduced military spending that originated in the wind-down of overseas commitments and was exacerbated by the government sequestration that forced further spending cuts. The other half of the drag has come from state and local government spending, which was crushed during the recession but is also beginning to turn around as tax receipts recover.

via Joe Mcalinden; Market .


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