State Budgets to Aid U.S. Growth Amid Federal Cuts: Economy

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http://www.bloomberg.com/news/2014-01-03/state-spending-to-boost-u-s-growth-amid-federal-cuts-economy.html

State and local governments are poised to increase spending this year, adding to the U.S. economic expansion, even as their federal counterpart cuts back.

Outlays by state and local authorities will add about 0.2 percentage point to gross domestic product in 2014, according to a forecast by economists at Morgan Stanley in New York. The federal government will probably contribute nothing to a projected increase of at least 2.6 percent in this year’s GDP.

The boost to growth represents a shift from 2010 through 2012, when cuts by states and municipalities reduced U.S. output by 0.3 percentage point each year on average, according to Commerce Department data. The reductions to GDP from local governments were the longest and deepest in the post-World War II era.

“The bulk of the fiscal imbalance at the state and local level is in the rear-view mirror,” said Ellen Zentner, a New York-based senior economist for Morgan Stanley. “It’s just another example of a headwind for the U.S. economy that’s shifting to a tailwind.”