Chart of the Day

Source: Heritage Foundation

Government Spending Helps Inflate the Latest GDP Number

According to the Department of Commerce Report the economy only contracted at a 1% annual rate in the second quarter. This is an improvement from a contraction of 6.4% in the first quarter of this year. Most of the improvement in the second quarter GDP over the first quarter is due to growth in government spending and not because of an actual improvement in the real economy.

According to the GDP report:
1. Durable Goods decreased 7.1%
2. Nondurable Goods decreased 2.5%
3. All Goods decreased 4.0%
4. Gross private domestic investment decreased a whopping 20.4%
5. Exports decreased 7.0%
6. Imports decreased 15.1%

In other words the private economy is still contracting very fast.

Government spending is growing very quickly. According to the second quarter GDP report:
1. Federal Government Spending increased 10.9%
2. Defense Spending increased a whopping 13.3%
3. Nondefense Spending increased 6.0%

Also, first quarter GDP was revised downward and consumer spending shrank at a higher than expected pace. According to Yahoo Finance :
"...the Commerce Department revised the first-quarter GDP figure much lower, saying economic activity tumbled 6.4 percent. That is the worst quarterly reading in nearly 30 years.

The latest report also said consumers cut spending by 1.2 percent in the second quarter, after a 0.6 percent increase in the first quarter."

Bottom line: The private economy is still doing very poorly.

Insane Government Spending

Total government (state, local, federal) spending will be about 45% of total GDP this year. This means that government spending represents nearly half of the total U.S. economy. And to think some people still do not think government is doing enough. I created the graph below from data from usgovernmentspending.com.


Notice total government spending as a percentage of GDP never rose above 10% (except briefly during the Civil War) until after 1913. I wonder why that is...
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