Howard Lutnick, Donald Trump's pick for commerce secretary, is a noted China hawk
Commerce Secretary Howard Lutnick stated that governments have historically "messed" with GDP calculations, and added that he plans to separate the two and make the process more transparent. AFP

Commerce Secretary Howard Lutnick suggested Sunday that government spending could be separated from the calculation of the United States' gross domestic product (GDP).

"You know that governments historically have messed with GDP," Lutnick said on Fox News Channel's "Sunday Morning Futures." "They count government spending as part of GDP. So I'm going to separate those two and make it transparent."

However, Lutnick did not provide a timeline for when this change might occur, the Associated Press reported.

His remarks came in response to concerns over whether the spending cuts advocated by Elon Musk's Department of Government Efficiency (DOGE) might lead to a recession.

Musk's push to reduce the size of federal agencies could lead to extensive layoffs of federal workers. The resulting loss of income for these workers might reduce their spending, which could affect businesses and the economy as a whole.

Currently, government spending is included in GDP as it directly affects overall economic growth, influencing taxes, spending, deficits, and regulations.

However, the Trump administration's argument appears to downplay the economic impact of government spending that can shape a country's economic path.

"A more accurate measure of GDP would exclude government spending," Musk posted on X.

Lutnick's comments seemed to echo Musk's argument from Friday that government spending does not contribute to economic value.

Meanwhile, the Commerce Department's Bureau of Economic Analysis released the latest GDP report Thursday, revealing that the U.S. economy grew at an annual rate of 2.3% in the final quarter of the previous year.

The report highlighted that consumer spending and increased federal spending on defense were major contributors to economic growth. In contrast, federal government spending for the full year grew at a rate of 2.6%, slightly lower than the overall economic growth of 2.8%.

Government spending makes up nearly one-fifth of personal income, which amounts to over $24.6 trillion in 2024, including Social Security, veteran benefits, Medicare, Medicaid, and other government programs. While these expenditures contribute to GDP, they can also subtract from growth, as seen in 2022 when pandemic-related aid expired.

Economists warn over changes to GDP reporting

Economists have raised concerns about separating government spending from GDP. They argue that doing so could make GDP figures more volatile and obscure a clear picture of the economy's health, potentially increasing uncertainty, reported Reuters.

They also warn that it will create confusion in financial markets, making it harder for investors and analysts to gauge the economy's true performance.

Sung Won Sohn, an economist at Loyola Marymount University, noted that such a move would make it difficult to compare the U.S. economy with other countries, and could misrepresent the overall economic situation.

Sohn further explained that it would distort the measure, as government productivity was typically considered zero in GDP calculations, regardless of actual production. The change could lead to a misleading assessment of economic performance.

"Economic growth over time would become a lot more volatile. The reason is, when the economy slows or, when we are in a recession, for example, the government spends a lot of money," Sohn urged. "I don't think the stock market, the financial markets would like that."