U.S. GDP is going to go down (economic professor at UI cited)

[torbee]

One consequence of government spending cuts? Lower GDP​

Justin HoFeb 26, 2025

An updated read on gross domestic product — basically, how fast the economy grew in the fourth quarter of 2024 — comes out Thursday. The first estimate from the Bureau of Economic Analysis said the economy grew at an annual rate of 2.3%.

Roughly 70% of that, give or take, was thanks to spending by or on behalf of consumers. But do you know what else spends money and is spent on behalf of? Government.

And government spending — as you may have heard — is on the chopping block.

Economists use a pretty simple formula to calculate GDP, said Anne Villamil, an economics professor at the University of Iowa.

“It is represented by C+I+G+NX,” she said. C stands for consumer spending, I for investment and NX for net exports — otherwise known as the balance of trade.

G stands for government spending. Specifically, discretionary government spending.

“The military, they buy airplanes and ammunition. Infrastructure projects — roads, airports, things like that. Housing assistance, general science, space,” Villamil said.

This kind of spending, at the federal level, amounts to about 6% of GDP.

Ernie Tedeschi, director of economics at Yale University’s Budget Lab, said to imagine you were to cut discretionary spending in half over the next year: “That would mechanically reduce GDP by 3%. That’s a substantial reduction in GDP growth,” he said.
Government spending cuts also have knock-on effects in other parts of the economy.

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said cuts could affect the “I” component of GDP: Investment. That’s because government spending can ensure that there’s demand for what private companies sell.

“And then you can take more risks in expanding, and growing, and investing in the real economy,” he said.

He added cuts to government spending also affect the biggest component of GDP: Consumer spending.

For instance, if the government lays off a lot of workers?

“That’s reduced spending power within the U.S. economy, and that means the individuals and businesses that serve those employees have reduced capacity. They may even institute some layoffs as a result,” LeBas said.

He said that’s why even small cuts to government spending can spiral.

Will federal spending cuts lower GDP? - Marketplace

Government spending makes up 6% of total gross domestic product. And besides, spending cuts come with economic ripple effects.

www.marketplace.org

 

[cigaretteman]

Applications for U.S. jobless benefits rose to a three-month high last week but remained within the same healthy range of the past three years.

The number of Americans filing for jobless benefits for the first time rose by 22,000 to 242,000 for the week ending Feb. 22, the Labor Department said Thursday. Analysts had projected that 220,000 new applications would be filed.

Weekly applications for jobless benefits are considered a proxy for layoffs.

The four-week average, which evens out some of the week-to-week volatility, climbed by 8,500 to 224,000.

Some analysts say they expect layoffs ordered by the Department of Government Efficiency to show up in the report in the coming weeks or months.

Unemployment claims rise to 242,000, the highest in 3 months

Figures do not include layoffs ordered by the Department of Government Efficiency. Analysts expect those to show up in coming weeks.

www.cbsnews.com

 

[cigaretteman]

The United States economy is starting to show signs of strain as President Trump’s abrupt moves to shrink federal spending, lay off government workers and impose tariffs on America’s largest trading partners rattle businesses and reverberate across states and cities.
Funding freezes and firings of federal workers combined with the prospect of costly trade wars are souring consumer sentiment, raising inflation expectations and stalling business investment plans, according to recent economic surveys.
Local economies are also bracing for a sudden withdrawal of fiscal support, forcing officials to contemplate tax increases or municipal bond offerings to stabilize their budgets. While Mr. Trump has acknowledged that his policies could bring some initial pain, the early warning signs suggest that his blunt approach could come with more ominous risks to the economy.
“There’s more uncertainty than I think is widely appreciated,” said Michael Strain, an economist at the conservative American Enterprise Institute. “All the uncertainty around trade policy, uncertainty around some of the things that the Department of Government Efficiency is doing, I think will have a chilling effect on investment plans and expansion plans.”
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Mr. Trump took office last month at a time of stable economic growth and easing inflation. The U.S. economy continues to be the strongest in the world.
But economists have warned that his plans to enact sweeping tariffs could cause prices to rise and trigger trade wars that would weigh on growth. There are early indications that those worries were valid.
The president’s moves to halt foreign aid and freeze some federal funding have already taken a toll on domestic farmers who export billions of dollars of products as part of American foreign aid programs. While some of Mr. Trump’s orders to halt funding have been paused by courts, they have still caused disruption to early-childhood programs such as Head Start. Billions of dollars of climate and infrastructure investments that were underway during the Biden administration are now in limbo.
A historically strong labor market, with a national unemployment rate of 4 percent, is also in jeopardy. The so-called Department of Government Efficiency, led by Elon Musk, has initiated thousands of job cuts across the federal government. The work force reductions are just beginning as the cost-cutting initiative scrutinizes how agencies align with Mr. Trump’s agenda.
The firings are reverberating beyond Washington, spurring protests at town hall meetings and backlash from some Republican lawmakers, who have expressed alarm about the economic fallout in their states.

https://www.nytimes.com/2025/02/27/business/trump-tariffs-spending-cuts-economy.html

 

[MitchLL]

Absolutely EVERYTHING is taking a shit at the same time.

But I have to make an admission that I was terribly wrong.
I thought it would take six months for Trump to trash the entire economy.
He's done it in five weeks.

WINNING!!!!!!!

 

[thewop]

One consequence of government spending cuts? Lower GDP​

Justin HoFeb 26, 2025

An updated read on gross domestic product — basically, how fast the economy grew in the fourth quarter of 2024 — comes out Thursday. The first estimate from the Bureau of Economic Analysis said the economy grew at an annual rate of 2.3%.

Roughly 70% of that, give or take, was thanks to spending by or on behalf of consumers. But do you know what else spends money and is spent on behalf of? Government.

And government spending — as you may have heard — is on the chopping block.

Economists use a pretty simple formula to calculate GDP, said Anne Villamil, an economics professor at the University of Iowa.

“It is represented by C+I+G+NX,” she said. C stands for consumer spending, I for investment and NX for net exports — otherwise known as the balance of trade.

G stands for government spending. Specifically, discretionary government spending.

“The military, they buy airplanes and ammunition. Infrastructure projects — roads, airports, things like that. Housing assistance, general science, space,” Villamil said.

This kind of spending, at the federal level, amounts to about 6% of GDP.

Ernie Tedeschi, director of economics at Yale University’s Budget Lab, said to imagine you were to cut discretionary spending in half over the next year: “That would mechanically reduce GDP by 3%. That’s a substantial reduction in GDP growth,” he said.
Government spending cuts also have knock-on effects in other parts of the economy.

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said cuts could affect the “I” component of GDP: Investment. That’s because government spending can ensure that there’s demand for what private companies sell.

“And then you can take more risks in expanding, and growing, and investing in the real economy,” he said.

He added cuts to government spending also affect the biggest component of GDP: Consumer spending.

For instance, if the government lays off a lot of workers?

“That’s reduced spending power within the U.S. economy, and that means the individuals and businesses that serve those employees have reduced capacity. They may even institute some layoffs as a result,” LeBas said.

He said that’s why even small cuts to government spending can spiral.

Will federal spending cuts lower GDP? - Marketplace

Government spending makes up 6% of total gross domestic product. And besides, spending cuts come with economic ripple effects.

www.marketplace.org

It almost has to go down, in the short term. This is a rare case when that's totally OK though, because it's because of responsible governance and not bad policy/decisionmaking/just poor economy. The "oh shit" moment will come if in Q2 2026 we're not on the way back up. Nothing is certain in economics, but it seems a 1-2 quarter decline is in order before an upward trend with some sustainability.

 

[Huey Grey]

At the local bar I drink at all day, the barkeep said that business is way down.

 

[torbee]

It almost has to go down, in the short term. This is a rare case when that's totally OK though, because it's because of responsible governance and not bad policy/decisionmaking/just poor economy. The "oh shit" moment will come if in Q2 2026 we're not on the way back up. Nothing is certain in economics, but it seems a 1-2 quarter decline is in order before an upward trend with some sustainability.

I’m sure you believe that fiction that makes you able to pretend everything is fine.

Unfortunately, reality doesn’t work that way.

 

[TC Nole OX]

Completely predictable

 

[thewop]

I’m sure you believe that fiction that makes you able to pretend everything is fine.

Unfortunately, reality doesn’t work that way.

It's big picture thinking. Not a liberal strong point. You have to let the business people do the work here, not really territory for journalists.

 

[jamesvanderwulf]

At the local bar I drink at all day, the barkeep said that business is way down.

Is that because of all the DEI layoffs, perhaps...

 

[seminole97]

Ernie Tedeschi, director of economics at Yale University’s Budget Lab, said to imagine you were to cut discretionary spending in half over the next year: “That would mechanically reduce GDP by 3%. That’s a substantial reduction in GDP growth,” he said.
Government spending cuts also have knock-on effects in other parts of the economy.


If only the public would take on unsustainable debt to consume the GDP number could be higher!

 

[jamesvanderwulf]

Economists use a pretty simple formula to calculate GDP, said Anne Villamil, an economics professor at the University of Iowa.

Like some professors, she is full of shit. GDP is a comprehensive measure of U.S. economic activity. GDP measures the value of the final goods and services produced in the United States (without double counting the intermediate goods and services used up to produce them). Changes in GDP are the most popular indicator of the nation's overall economic health.

Some spending is inflationary by nature, i.e. defense spending. Doesn't produce a consumer product, therefore more money chasing the same finite number of goods unless you're going to buy a tank or a dozen grenades...

 

[CarolinaHawkeye]

It's big picture thinking. Not a liberal strong point. You have to let the business people do the work here, not really territory for journalists.

LOL. I suppose you think the big picture is a maganazi strong point?

 

[NorthEndzoneCrew]

Anyone that believes Trumps moves in the government are not going to rip through the entire economy are kidding yourselves.

The U.S. government is the countries largest employer. And funds a lot of the private economy, you start shutting off that flow like Trump has….things are going to get real fair for everyone, real fast.

Anyone enjoying seeing the pain of federal workers should buckle up…there is a reason confidence has cratered.

 

[BioHawk]

I just don't understand why people are cheering this so much. This administration is running the "Intentionally tank the team so we can move them to Miami" level of management here.

 

[MitchLL]

Trump better hope voters have short memories.

Midterms will be here before he knows it.

I fully expect Vance will be President within two years.

 

[McLovin32]

It's big picture thinking. Not a liberal strong point.

You fall for tiktok conspiracy theories. You can't really trash talk anyone.

 

[stanzithemanzi12]

The United States economy is starting to show signs of strain as President Trump’s abrupt moves to shrink federal spending, lay off government workers and impose tariffs on America’s largest trading partners rattle businesses and reverberate across states and cities.
Funding freezes and firings of federal workers combined with the prospect of costly trade wars are souring consumer sentiment, raising inflation expectations and stalling business investment plans, according to recent economic surveys.
Local economies are also bracing for a sudden withdrawal of fiscal support, forcing officials to contemplate tax increases or municipal bond offerings to stabilize their budgets. While Mr. Trump has acknowledged that his policies could bring some initial pain, the early warning signs suggest that his blunt approach could come with more ominous risks to the economy.
“There’s more uncertainty than I think is widely appreciated,” said Michael Strain, an economist at the conservative American Enterprise Institute. “All the uncertainty around trade policy, uncertainty around some of the things that the Department of Government Efficiency is doing, I think will have a chilling effect on investment plans and expansion plans.”
Advertisement
SKIP ADVERTISEMENT


Mr. Trump took office last month at a time of stable economic growth and easing inflation. The U.S. economy continues to be the strongest in the world.
But economists have warned that his plans to enact sweeping tariffs could cause prices to rise and trigger trade wars that would weigh on growth. There are early indications that those worries were valid.
The president’s moves to halt foreign aid and freeze some federal funding have already taken a toll on domestic farmers who export billions of dollars of products as part of American foreign aid programs. While some of Mr. Trump’s orders to halt funding have been paused by courts, they have still caused disruption to early-childhood programs such as Head Start. Billions of dollars of climate and infrastructure investments that were underway during the Biden administration are now in limbo.
A historically strong labor market, with a national unemployment rate of 4 percent, is also in jeopardy. The so-called Department of Government Efficiency, led by Elon Musk, has initiated thousands of job cuts across the federal government. The work force reductions are just beginning as the cost-cutting initiative scrutinizes how agencies align with Mr. Trump’s agenda.
The firings are reverberating beyond Washington, spurring protests at town hall meetings and backlash from some Republican lawmakers, who have expressed alarm about the economic fallout in their states.

https://www.nytimes.com/2025/02/27/business/trump-tariffs-spending-cuts-economy.html

The economy has been showing signs of strain for over 1.5 to 2 years.

 

[Kelsers]

The economy has been showing signs of strain for over 1.5 to 2 years.

What are those signs?

 

[tumorboy]

It's big picture thinking. Not a liberal strong point. You have to let the business people do the work here, not really territory for journalists.

We’re all dead in the long run. Big picture thinking.

 

[noleclone2]

So, yes I know this is a subjective and silly way of gauging health of economy, but because of my job, being financially comfortable in disposable income sense, busy with myself and wife working, and both us being meh cooks, we eat out a lot, both lunch and dinner.

Folks, restaurants are for sure in trouble. Place I had business lunch at just now had literally one other table. No wait anywhere we go. Noticed it Saturday at a trendy bar usually packed. People are spooked and cutting back spending, which is only going to hasten our doom with everything. Consumer confidence, IMHO, truly is the most important indicator of troubled times and people are majorly spooked. I saw this right before 2008 bubble burst. People know and feel it coming.

Looks like I will be going grocery shopping this weekend too…

PS - get out of stock market folks.

 

[MitchLL]

So, yes I know this is a subjective and silly way of gauging health of economy, but because of my job, financially comfortable, busy with myself and wife working, and being meh cooks, we eat out a lot both lunch and dinner.

Folks, restaurants are for sure in trouble. Place I had business lunch at just now had literally one other table. No wait anywhere. Noticed it Saturday at a trendy bar usually packed. People are spooked and cutting back spending, which is only going to hasten our doom with everything. Consumer confidence, IMHO, truly is the most important indicator of troubled times and people are majorly spooked. I saw this right before 2008 bubble burst. People know and feel it coming.

Looks like I will be going grocery shopping this weekend too…

PS - get out of stock market folks.

Agree...there are indicators EVERYWHERE that tough times are quickly approaching.

Thanks, Trump.

 

[onlyTheObvious]

Government spending to the tune of $36 trillion too much isn’t sustainable.

It seems Trump has shown you can cut spending without congress. If the Dems get power and do their own cuts and raise taxes, we might get somewhere.

Or we can pretend it won’t matter when all tax revenue collected can’t even make the interest payments on the debt.

 

[tumorboy]

It's big picture thinking. Not a liberal strong point. You have to let the business people do the work here, not really territory for journalists.

Business people such as a person that has taken bankruptcy 6 times. Couldn’t be profitable in the Casino business.
Only time he’s made money is as a Game Show Host and Running and being president.

 

[tumorboy]

So, yes I know this is a subjective and silly way of gauging health of economy, but because of my job, being financially comfortable in disposable income sense, busy with myself and wife working, and both us being meh cooks, we eat out a lot, both lunch and dinner.

Folks, restaurants are for sure in trouble. Place I had business lunch at just now had literally one other table. No wait anywhere we go. Noticed it Saturday at a trendy bar usually packed. People are spooked and cutting back spending, which is only going to hasten our doom with everything. Consumer confidence, IMHO, truly is the most important indicator of troubled times and people are majorly spooked. I saw this right before 2008 bubble burst. People know and feel it coming.

Looks like I will be going grocery shopping this weekend too…

PS - get out of stock market folks.

Glad I purchased my new flooring and refrigerator back in January.

 

[IIowaFarmBoy]

Anyone that believes Trumps moves in the government are not going to rip through the entire economy are kidding yourselves.

The U.S. government is the countries largest employer. And funds a lot of the private economy, you start shutting off that flow like Trump has….things are going to get real fair for everyone, real fast.

Anyone enjoying seeing the pain of federal workers should buckle up…there is a reason confidence has cratered.

Confidence was about inflation

 

[Hawki97]

So, yes I know this is a subjective and silly way of gauging health of economy, but because of my job, being financially comfortable in disposable income sense, busy with myself and wife working, and both us being meh cooks, we eat out a lot, both lunch and dinner.

Folks, restaurants are for sure in trouble. Place I had business lunch at just now had literally one other table. No wait anywhere we go. Noticed it Saturday at a trendy bar usually packed. People are spooked and cutting back spending, which is only going to hasten our doom with everything. Consumer confidence, IMHO, truly is the most important indicator of troubled times and people are majorly spooked. I saw this right before 2008 bubble burst. People know and feel it coming.

Looks like I will be going grocery shopping this weekend too…

PS - get out of stock market folks.

I travel and eat out a lot. I have noticed this over the last few weeks as well.

I'm not ready to say we're falling over the edge or if there's a direct correlation, but I have noticed it.

 

[stanzithemanzi12]

What are those signs?

Inflation, interest rates, consumer debt.

 

[torbee]

It's big picture thinking. Not a liberal strong point. You have to let the business people do the work here, not really territory for journalists.

Here is the CV of the person quoted.

Let’s compare it to yours.

Please post it.

Current Positions​

• Professor, Economics
• Henry B. Tippie Research Fellow in Economics, Economics

Education​

• PhD in Economics, University of Minnesota
• BA in Economics, University of Rochester

Research Interests​

• Macroeconomics
• Monetary Economics
• Financial Economics
• Public Economics
• Bankruptcy
• Entrepreneurship
• Taxation
• Health Finance and Insurance

Selected Awards & Honors​

• Public Scholarship Award - Tippie College of Business, 2023
• Peter Moores Fellow - University of Oxford, 2011
• Economic Theory Fellow - Society for the Advancement of Economic Theory (SAET), 2011
• Executive MBA GREAT Instructor of the Year - Tippie College of Business, 2023
• Executive MBA GREAT Instructor of the Year - Tippie College of Business, 2020
• Professional Excellence in the Training of Economists Award for Graduate Student Advising - Tippie College of Business, 2017

Professional Memberships​

• Applied Mathematical and Computational Sciences, 2016
• American Economic Association
• Committee on the Status of Women in the Economics Profession
• Econometric Society
• Midwest Economic Association
• Society for the Advancement of Economic Theory
• Association for the Advancement of African Women Economists

 

[Here_4_a_Day]

I travel and eat out a lot. I have noticed this as well over the last few weeks as well.

I'm not ready to say we're falling over the edge or if there's a direct correlation, but I have noticed it.

Funny shit right here ^ Papa! Did you get your dentures to stick?

 

[mnole03]

Ernie Tedeschi, director of economics at Yale University’s Budget Lab, said to imagine you were to cut discretionary spending in half over the next year: “That would mechanically reduce GDP by 3%. That’s a substantial reduction in GDP growth,” he said.
Government spending cuts also have knock-on effects in other parts of the economy.

If only the public would take on unsustainable debt to consume the GDP number could be higher!

The deficit isn’t going down. I could see some multiplier effect from the loss in consumption from government workers, but the tax cuts will almost certainly go toward investment. Granted it might not necessarily be in the United States.

 

[seminole97]

Anyone that believes Trumps moves in the government are not going to rip through the entire economy are kidding yourselves.

The U.S. government is the countries largest employer. And funds a lot of the private economy, you start shutting off that flow like Trump has….things are going to get real fair for everyone, real fast.

But all real funding must be produced first by the private economy before the government can commandeer it and redirect it for consumption by those blessed by government spending.
If we remove government as a consumer, the private economy is richer thereby. It’s the people who don’t produce, but instead rely on the government to provide their consumption, that are in a pickle.

Anyone enjoying seeing the pain of federal workers should buckle up…there is a reason confidence has cratered.

Economy has tons of job turnover every year.
Getting people out of jobs furthering consumption and into jobs that actually produce wealth will result in more wealth produced than if several hundred thousand of them were still locked up in government jobs consuming what everyone else makes.

 

[torbee]

Like some professors, she is full of shit. GDP is a comprehensive measure of U.S. economic activity. GDP measures the value of the final goods and services produced in the United States (without double counting the intermediate goods and services used up to produce them). Changes in GDP are the most popular indicator of the nation's overall economic health.

Some spending is inflationary by nature, i.e. defense spending. Doesn't produce a consumer product, therefore more money chasing the same finite number of goods unless you're going to buy a tank or a dozen grenades...

Imagine thinking you know more about economics than someone with a PhD in economics and an Oxford fellowship/

Just wow 😂

You pour concrete for a living, no?

 

[Here_4_a_Day]

I remember when, "Trump rode the coattails of the amazing 0boma economy for almost four years??!" What gives now that jo's only lasted four weeks??! 🤡 🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣 Stupid sons-a-bitches.......

 

[Hawki97]

Funny shit right here ^ Papa! Did you get your dentures to stick?

Lulz! Just because your whore of a mother and your dead beat dad didn't teach you how to ever have a pot to piss in doesn't mean everyone is that way! Don't worry bitch boy, you've got a new daddy. Lulz. Owned.

 

[Joes Place]

This is a rare case when that's totally OK though, because it's because of responsible governance

Firing, then having to re-hire nuclear material handlers is "responsible governance"?
Firing, then having to re-hire bird flu monitoring at NIH is "responsible governance"?
Firing, then having to re-hire FDA reviewers for med devices is "responsible governance"?
Firing, then having to re-hire Ebola monitors with USAID is "responsible governance"?

You seem a bit confused on what constitutes "responsible governance"

 

[Joes Place]

Glad I purchased my new flooring and refrigerator back in January.

Glad I got my house repainted last fall instead of waiting til this spring.

 

[HawkeyeHitman]

Imagine thinking you know more about economics than someone with a PhD in economics and an Oxford fellowship/

Just wow 😂

You pour concrete for a living, no?

Pouring concrete adds more value to society than some bullshit PhD or a worthless bathhouse loving Marxist leech.

 

[HawkeyeHitman]

I travel and eat out a lot. I have noticed this over the last few weeks as well.

I'm not ready to say we're falling over the edge or if there's a direct correlation, but I have noticed it.

When you go to an interstate bathhouse are they staying full for you?

 

[theVoicefromtheTomb]

Pouring concrete adds more value to society than some bullshit PhD or a worthless bathhouse loving Marxist leech.

So who knows more about economics, the concrete guy or the PhD in economics?