The UK economy, in the midst of its own premature deficit reduction efforts, barely budged in the second quarter, up only 0.2% (though it sounds a bit less bad if you say “naught-point-two-percent” as I heard on the BBC today). The Q2 rate is down from an already slight 0.5% rate in the first quarter.
And get a load of this—turns out you can earn a downgrade on your debt even with an austerity plan, if said plan whacks your growth rate (these raters get you comin’ and goin’). Which, if your economy is not recovered, it will.
On this side of the pond, the devious Cut, Cap, and Run bill that R’s keep touting (but isn’t going anywhere) would have cut 0.7% of GDP, around $110 billion, in fiscal year 2012, which begins on Oct 1!
The Gang o’ Six would have zapped 0.2% in FY2012…better, but still…when did masochism replace Keynesianism?
From a new research note from Goldman Sachs (no link):
“A review of the spending and tax data at the federal, state, and local level suggests that a significant part of the weakness in economic activity in 2011 so far is due to fiscal retrenchment. In the first quarter, the Commerce Department estimates that spending cuts at the federal, state, and local level subtracted 1.2 percentage points from the annualized pace of real GDP growth; moreover, the expiration of the “Making Work Pay” federal tax cut and hikes in state taxes probably offset most, if not all, of the boost to disposable income from the temporary payroll tax cut.
In the second quarter, the fiscal policy impact was probably smaller, but still negative. Indeed, monthly data on defense spending, state and local employment, and state and local construction all show a clear downward trend for 2011 so far.”
It’s not clear which budget plan, if any, we’ll end up with. But unless we want to start posting naughts on the GDP, we’d better be sure spending cuts are as backloaded as possible. Nothing should start in 2012 and probably not in 2013 either. That won’t matter at all to the deficit, but it could matter a lot to the unemployment rate.