Monday, June 14, 2010

Economy Slows as States Lose Federal Stimulus Funds; MacroAdvisers says Chances of "Double-Dip" are Essentially Nil

For only the second time in 50 years, state budget cuts will act as a fiscal drag on GDP as noted by Bloomberg in Economy in U.S. Slows as States Lose Federal Stimulus Funds. http://www.bloomberg.com/apps/news?pid= ... jgvI&pos=7

Spending cuts by state and local governments from New York to California may act as a drag on the economy into 2011, only the second time in more than a half century that such reductions have restricted growth for three consecutive years.

States face a cumulative budget gap of $127.4 billion as 46 prepare for the start of their fiscal year on July 1, according to a report this month by the National Governors Association and the National Association of State Budget Officers. They will have to fill that hole largely on their own, as aid from the federal government under programs including President Barack Obama’s $787 billion stimulus package starts to wind down.

State and local cutbacks may trim growth by about a quarter percentage point in 2010 and 2011 after shaving it by 0.02 point in 2010, said Mark Zandi, chief economist at Moody’s Analytics Inc. He also sees the governments lopping payrolls by 200,000 during the next year after reducing them by 190,000 in the 12 months through May.

“The budget cutting that is dead ahead will be a significant impediment to economic growth later this year into 2011,