Think Chart: Government Spending Headwinds

Friday, the monthly Treasury statement was released for May 2011. The data itself quite noisy – and most analysts pass on deciphering these tea leaves.  After all, a MoM look at this statement offers no real conclusions on what is going on as the data is so noisy.

Econintersect has taken the monthly data and has removed some of the noise by averaging the data.  Keep in mind that so far this fiscal year, the government has taken in $1.484 trillion – while spending $2,412 trillion.  The government is spending $1.62 for every dollar it receives.

Consider some of the observations:

  • Intuitively, government receipts (taxation) growth is a measure of economic health.  Current YoY growth is over 10%, and is indicative of an expanding economy (blue line in above chart).
  • Tax receipts are currently trending up.
  • As this chart compares data YoY, current receipts are currently being compared against stronger post-recession periods.
  • Spending (red line in above chart) is trending down after peaking in March 2011.  It suggests there is at least a partial correlation between government spending and GDP (or Wall Street) based on the less good economic data now being seen.
  • It is likely low taxation is causing the debt – not spending.

Since 2000, government spending has grown faster than GDP, and next year (which begins in October 2011) – the budget is estimated to contract.


The USA has been growing on the back of government spending growth averaging 7.5% per year over the last 10 years.  In the previous 10 year period beginning in 1991, government spend growth was 3.6% – less than one half.

The reverse happened to GDP.  In the last 10 years, GDP average growth was 1.7% per year.   In the previous 10 year period beginning in 1991, GDP growth averaged 3.4% per year – double our current average growth.

Yet the government’s GDP spending as a percent of GDP is smaller than 20 years ago.  This contradiction happens as today only 35% of the Government’s spending makes it into GDP – while 20 years ago it was 40%.

Economists believe GDP measures the productive elements of an economy.  If this is true, the Government is less effective today in how it spends the USA’s money.

Many simply believe that keeping government spending constant, or a slight contraction will have little economic effect.

We are about to find out whether this belief is true.

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