The Morning Economic Report
3:42 am
Mon July 28, 2014

Adjusting Government Spending - 7/28/14

The painful process of adjusting federal government spending to align it with fiscal realities has begun.  Despite that, America continues to run annual federal budget deficits and the national debt is presently approaching $17.6 trillion.  Through sequestration and other measures, the federal government has slowed the growth in expenditures recently, and that helps explain the underwhelming performance of the economy.  U.S. Treasury budget data indicate that federal outlays declined sharply in June.  For example, national defense outlays declined by 14.2 percent in June and were down nearly 6 percent for the second quarter. 

According to Moody’s Analytics, June’s Treasury budget figures put real federal government spending on track to decline at a 6.3 percent annualized pace during the second quarter compared with the previous estimate of a 3.9 percent decline.  On top of the fiscal drag created by the federal government, there is the drag generated by many state and local governments around the country, which among other things have been cutting back on school construction and public safety expenditures due to a combination of soft revenue growth and rising pension and healthcare expenses.