Bloomberg News

State, City Cuts Trim U.S. Growth for Record Four Quarters

July 29, 2011

(Updates with job reductions in eighth paragraph.)

July 29 (Bloomberg) -- State and local cuts were a drag on the U.S. economy from April to June for the fourth straight quarter, the longest slide since at least 1947, as governments slashed spending and dismissed employees to balance budgets.

Spending and investment by state and local governments shrank at a 3.4 percent annual rate in the second quarter, matching the decline in the first three months of 2011, the U.S. Commerce Department said today. The fourth consecutive drop is the longest such slump since the government began compiling quarterly data in 1947.

The U.S. economy expanded at a less-than-forecast 1.3 percent annual rate, the Commerce Department said. State and local governments accounted for a 0.41 percentage point drag, the same as the first quarter, as governors and mayors adjusted to lower revenue by cutting employees and services.

“We’ve seen this before, but we haven’t seen it to this magnitude,” said Chris Mier, a managing director at Loop Capital Markets LLC in Chicago who follows the municipal-bond market.

State and local government purchases and investments slid to about $1.45 trillion in the second quarter, the lowest amount since the three months ended in September 2001. The figure may decline again as the recovery continues from the 18-month recession that ended in June 2009, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

More to Come

“It’s an ongoing process,” Shapiro said. “It’s probably got at least another year or two to go.”

States had to deal with initial fiscal 2012 deficits estimated at $103 billion as budget writers crafted spending plans, according to the Center on Budget and Policy Priorities, a nonprofit research organization in Washington. The group focuses on issues affecting lower-income Americans.

Local and state governments employed 557,000 fewer workers in June, or 2.9 percent below an August 2008 peak of 19.8 million, according to U.S. Labor Department data compiled by Bloomberg.

--With assistance from Alex Tanzi in Washington. Editors: Mark Tannenbaum, Ted Bunker, Stephen Merelman.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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