While naysayers dismissed today’s 3.2% Q4 annualized GDP growth number because 0.42% of it was from a rise in inventories, excluding them Q4 GDP was 2.8% while Q3 GDP was just 2.5%! Moreover, a drastic decline in federal government defense spending along with the government closure clipped 0.98% from Q4 GDP growth while residential construction, which had a lousy quarter, subtracted 0.32%! Housing will improve, and the closure was one-off.
Tag Archives: Federal Spending
Accidental Growth
While Congress will inevitably pass a Continuing Resolution to fund the government beyond 9/30/13 when the current CR expires, a key question is at what spending level. If current funding levels are carried into FY14, as is usually the case for short term CRs (but maybe not this time), they would exceed the 2014 budget sequestration limit. This would reduce FY2014 budget cuts and boost growth. Good policy, albeit accidental.
Dibilitating Debt Service
Interest on the federal debt is 1.4% of GDP; $200 billion. But, it is projected to ramp up fast for 2 reasons. 1st we add $1.4 tillion to it every year and 2nd interest rates are at historic lows. If the annual deficit remains unchanged for 3 years and if interest rates double interest on the debt would climb to close to 4% of GDP or $500 billion; and would consume about 15% of all federal spending.