Austerity Bites: GDP Revised Lower
The United States economy has definitely begun to feel the effects of austerity.
Cuts to government spending held back growth more than initially expected during the first quarter. Drawing on revised figures, the U.S. Department of Commerce reported Thursday that gross domestic product expanded at a 2.4 percent annual rate in the first three months of the year, down a tenth of a point from an initial estimate released at the end of April.
Judging from reasonably stable employment, housing, and consumer sentiment data, analysts had forecast that GDP would have remained in line with the original figure. But growth was hurt as spending across all levels of government slowed. Washington has tightened its fiscal belt several notches in the past several years. However, in 2013, the federal government significant increased austerity measures, hiking payroll taxes in January and slashing the federal budget in March.
Even with those austerity measures in place, economic growth has been fairly resilient so far this year, helped by the Federal Reserve’s low interest rate policies. Still, most economists believe that growth will continue to slow through the middle of the year as budget cuts come into effect. In total, government spending dropped at a 4.9 percent annual rate in the first quarter.