Ahead of the Tape
Government Spending Holds Key to Growth</br></br>As goes government spending, so goes the U.S. economy.</br></br>This is the unpleasant reality a weak recovery and already stretched Federal Reserve have bequeathed. Absent a sudden pick-up in private-sector activity, economic growth in the months ahead will largely take its cue from Congress and the White House. No wonder markets are jittery.</br></br>For one, the hit from spending cuts across all levels of government has already been a major drag on growth. Indeed, these declines shaved 0.7 percentage point on average from gross domestic product growth in the first two quarters of 2011. Typically, that would be no disaster. Trouble is, this recovery has been unusually weak. So the government cutbacks effectively halved real GDP growth in the first half of 2011, leaving it at just 0.8% annualized.</br></br>The pace of underlying growth is expected to pick up a bit in coming months. But so, too, is the pace of government spending cuts. A glimpse of this will come Wednesday with the release of July federal budget figures. These are expected to show a third month in a row of year-on-year declines in spending, or "outlays," according to a preliminary analysis from the Congressional Budget Office. Their estimates show spending is down nearly 12% on average since May from a year earlier.