US growth hit by automatic spending cuts, says Obama aide

29 Apr 13
The automatic spending cuts which took effect in the US on March 1 have already begun to hold back economic growth, according to President Barack Obama’s chief economic adviser, Alan Krueger.

By Nick Mann | 29 April 2013

The automatic spending cuts which took effect in the US on March 1 have already begun to hold back economic growth, according to President Barack Obama’s chief economic adviser, Alan Krueger.

Figures published by the Bureau of Economic Analysis on Friday show that the US economy grew by 2.5% in the first three months of the year, compared with 0.4% the previous quarter.

The growth was largely driven by increased investment in housing. Non-residential fixed investment – spending on factories – and consumer spending also contributed to the improvement.

However, federal government spending on defence fell by 11.5% and on other areas by 2%. Local government expenditure dropped by 1.2%.

Krueger, who is chair of the president’s Council of Economic Advisers, said these declines were at least in part due to the $85bn automatic spending cuts, known as sequestration, that took effect on March 1. He warned that their impact would continue to be felt in the future.

‘These arbitrary and unnecessary cuts to government services will be a headwind in the months to come, and will cut key investments in the nation’s future competitiveness,’ he said. ‘The Congressional Budget Office has estimated that the sequester will reduce GDP growth by 0.6 percentage points for the year.’

Krueger called on Congress to agree a long-term deficit reduction plan in place of the automatic cuts. ‘Now is not the time for Washington to impose self-inflicted wounds on the economy,’ he said.

‘The administration continues to urge Congress to replace the sequester with balanced deficit reduction, while working to put in place measures to put more Americans back to work, like rebuilding our roads and bridges and promoting American manufacturing,’ he added.

‘The president will continue to work with Congress to act on measures he called for in the State of the Union to promote job growth, ensure workers have the skills they need to compete, and help hardworking Americans make a decent living.’

He did, however, claim that the figures showed the US economy as a whole was ‘moving in the right direction’.

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