Decline in state government spending drag down second GDP estimate

US Gross Domestic Product (GDP) growth for fourth quarter 2010 was revised to an annual rate of 2.8 percent in the second estimate, down from the first estimate of 3.2 percent.

The primary cause of this downward revision is declines in state and local government spending, which in the second estimate fell 2.4 percent compared with the first estimate of a 0.9 percent decline.

Economist Paul Ashworth of Capital Economics explained that the end of emergency Federal support for state governments was a factor. Moreover, the expiry of the Build America Bond program, which gave states cheap financing, hit spending sooner than most expected.

Going forward, state and local governments are likely to continue to struggle as some have already rolled out decisive budget cuts for the coming fiscal year.

One bright spot, though, is private consumption growth, which was revised down to 4.1 percent, compared to the first estimate of 4.4 percent.

Despite the downward revision, Ashworth said growth rates above 4 percent for private consumption are “still pretty impressive.”