Super Conservative "Wall Street Journal" : Federal Spending Cutbacks Slow Recovery - Sharp Drop in Military, Stimulus Spending Take a Toll on Economic Rebound - The economy is getting hurt already by the sharp drop in federal spending," said Joe LaVorgna, chief U.S. economist for Deutsche Bank

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Wall Street Journal
Federal Spending Cutbacks Slow Recovery
Sharp Drop in Military, Stimulus Spending Take a Toll on Economic Rebound
By Ben Casselman and Conor Dougherty
July 30, 2012


Federal Spending Cutbacks Slow Recovery


Some excerpts :

Falling military spending and the end of federal stimulus programs are further slowing the already weak U.S. economic recovery. Conor Dougherty has details on The News Hub. Photo: Reuters.

In recent weeks, policy debate in Washington has turned to the looming "fiscal cliff," billions of dollars in spending cuts and tax increases set to take effect at the start of the new year. The Congressional Budget Office, Federal Reserve Chairman Ben Bernanke and others have warned that the cuts would tip the U.S. into recession early next year, and some economists have argued that the uncertainty generated by the debate could act as a drag on the economy long before then.

Recent economic data show that long before the fiscal cliff hits, federal spending already is falling—and taking a toll on the recovery. Federal spending and investment fell at an annual rate of 0.4% in the second quarter and has fallen 3.3% in the past year. Federal employment has fallen by more than 52,000 jobs in the past year and for the first time is lower than when the recovery began.

Such figures understate the full effect of the cuts, as lower federal spending hits military and civilian contractors and cuts into federally backed infrastructure spending at the state and local level. Taken together, the cuts are partially offsetting private-sector growth that, while slow, has been consistent.

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In the long run, of course, reduced federal spending, possibly in combination with tax increases, should help rein in huge budget deficits and put the economy on sounder footing. Numerous experts, from Mr. Bernanke to the leaders of the president's budget commission, have urged policy makers to take steps now to address the government's long-term fiscal issues.

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