Strained budgets in states and local governments dont just affect the area residents — they can cause a drag on the whole U.S. economy.
Spending from state and local governments fell at a 2% annual rate in the fourth quarter, a revised gross domestic product report showed today. Thats much worse than the 0.3% drop in the original estimate or the 0.6% decline in the third quarter. And upcoming quarters could show similarly bad numbers as revenues continue to fall.
These administrators are likely to have to fire more workers and obviously cut spending, said BNP Paribas Anna Piretti. That would have a very large impact.
Piretti noted that state and local governments are roughly the same size as the manufacturing sector — the area thats been the main impetus for economic activity so far — and could seriously damp growth.
If you see substantial weakness there it would offset the strength were seeing in manufacturing, Piretti said.
Its just another reason for analysts to worry that the economy could remain fragile as long as consumers arent contributing more to growth.