Budget Cuts Reduce Economic Growth In First Quarter Of 2013

Economic growth slowed slightly in the first three months of the year thanks in large part to the government’s spending cuts, according to first quarter GDP numbers. As Reuters reports, “The U.S. economy expanded at a 2.4 percent annual rate during the period, down a tenth of a point from an initial estimate, according to revised figures from the Commerce Department released on Thursday.” Analysts had been expecting a 2.5 percent increase.

While the economy hadn’t felt the effects of sequestration in past reports, it seems to have shown up in Thursday’s. Government spending dropped at a 4.9 percent annual rate in the first quarter, faster than the estimate of 4.1 percent. That shaved 97 basis points off of GDP, according to Daniel Gross. Economists believe that government agencies likely slowed spending in anticipation of sequestration’s impact. While spending fell at all levels of government, the downward revision was mostly thanks to a drop at the county and city level.

It isn’t just the economy that’s feeling sequestration’s impact. More and more Americans report being affected by the automatic budget cuts. A recent poll found that nearly four in ten Americans say they’ve been personally hurt by sequestration, up from a quarter in March. About half of those impacted say it has been “major,” and the effects are leading to a steady rise in pessimism about the cuts and the economy at large.

The United States has received warnings that implementing austerity, including sequestration as well as past spending cuts in the trillions of dollars, will lead to slower economic growth. The International Monetary Fund lowered its estimate of American growth in 2013 by 0.2 percentage points to 1.9 percent thanks to the U.S. aggressively pursuing budget cuts. Sequestration alone has been predicted to reduce GDP from 2.6 percent to 2 percent this year as well as to cost the economy about 700,000 jobs by the end of 2014.