GDP Report: Sequestration Continues To Drag On Economic Growth


capitolmoneyThe U.S. economy grew at an annual rate of 1.7 percent from April to June, above the consensus expectations of economists, government analysts reported Wednesday. Reuters’ survey of economists had predicted quarterly growth of 1 percent, with some warning the growth rate might have been as low as 0.4 percent. The preliminary number released by the Bureau of Economic Analysis (BEA) is subject to revisions and is still below the growth rate required to bring down unemployment.

The number could have been even stronger without sequestration. The share of growth related to government spending detracted 0.08 percentage points from overall growth, reflecting a 1.5 percent decline in government consumption and investment over the second quarter of the year. The BEA also revised GDP growth for the first quarter down to 1.1 percent from an initial figure of 1.8 percent.

Austerity had already taken a large bite out of the last two quarterly GDP figures, which saw much larger slides in government consumption, and Wednesday’s release marked the 8th quarter out of the past 10 where public policy was harming rather than helping economic growth:

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The International Monetary Fund has warned the “excessively rapid” cuts from sequestration are undermining economic growth both now and in the future. The Congressional Budget Office announced last week that reversing sequestration would create between 900,000 and 1.6 million jobs and add 0.7 to 1.2 percentage points to GDP.

Meanwhile, the reasoning behind the shift to austerity has crumbled: The research conservatives cited as proof that high debt would doom the economy was riddled with errors. The combination of stable debt levels and rock-bottom costs of borrowing give policymakers good reason to reset the fiscal debate.