SOURCE: John Thomas Financial

John Thomas Financial

May 03, 2011 15:30 ET

John Thomas Financial Chief Economist Mike Norman Says Spending Cuts Could Hurt Growth in the Second Half

NEW YORK, NY--(Marketwire - May 3, 2011) - John Thomas Financial Chief Economist Mike Norman compares and contrasts the consumption, expenditures, and investment of the last five administrations with an analysis that may surprise some readers. In his summary, Norman states the following:

First quarter GDP came in lower than anticipated. The 1.8% growth rate was the weakest since the second quarter of 2010 and well below the 3.1% growth rate of Q4 of last year.

A close analysis of the GDP report reveals that government spending fell sharply, shaving 1.09% off overall growth. That completely wiped out the 1.01% contribution from business investment.

The drop in government spending was the largest in 28 years. Most of the reduction was attributed to a large drop in defense spending and while Fed Chairman Ben Bernanke said this is likely to be temporary, he could be wrong. That's because incoming Defense Secretary, Leon Panetta, has signaled further cuts when he takes over from Robert Gates on June 30th. Furthermore, non-defense spending reductions are likely as well.

Republican demands for deep spending cuts belie their history. Of the last five presidents (including Obama), it was two Republican presidents who were the biggest spenders. The chart below shows the quarter-over-quarter average percentage increase in government spending under presidents Reagan through Obama.

As you can see in the enclosed graph, average levels of government spending were highest under Reagan, by a huge margin. We had a boom back then. Next was Bush II, then Clinton, then Bush I and last, but not least, was Obama. Average quarterly increases in gov't spending under Obama have been a miserly 0.7%.

While it's true that nominal spending has increased under Obama, the percentage increases have been very modest. In contrast, Reagan really put the pedal to the metal.

For timely insights, news, and commentary on economics and financial markets, visit the JTF Blog or join the John Thomas Financial community on Twitter and Facebook.

About John Thomas Financial
John Thomas Financial, member of the FINRA and SIPC, is an independent broker-dealer and investment banking firm headquartered in New York City's Wall Street district. Emphasizing a client-centric approach to managing all aspects of its business, the firm offers a full complement of retail brokerage and corporate advisory services tailored to the unique needs of its clients. For more information on the firm, please visit www.johnthomasbd.com.

IMPORTANT DISCLOSURES

THE INFORMATION PROVIDED IN THIS PUBLICATION IS FOR INFORMATIONAL PURPOSES ONLY. INVESTORS SHOULD CONSIDER THIS REPORT AS ONLY A SINGLE FACTOR IN MAKING THEIR INVESTMENT DECISION. THIS INFORMATIONAL REPORT IS NOT AN OFFER TO SELL OR A SOLICITATION TO BUY ANY SECURITY. THIS REPORT HAS BEEN PREPARED AS A MATTER OF GENERAL INFORMATION. IT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ANY COMPANY, AND IS NOT AN OFFER TO BUY OR SELL ANY SECURITY. ALL FACTS AND STATISTICS ARE FROM SOURCES BELIEVED TO BE RELIABLE, BUT ARE NOT GUARANTEED AS TO ACCURACY. BEFORE ACTING ON THE MATERIALS HEREIN YOU SHOULD CONSIDER WHETHER IT IS SUITABLE FOR YOU PARTICULAR CIRCUMSTANCES AND, IF NECESSARY SEEK PROFESSIONAL ADVICE INVESTMENTS INVOLVE RISK AND AN INVESTOR MAY INCUR LOSSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. TRADING AND INVESTMENT DECISIONS ARE THE SOLE RESPONSIBILITY OF THE READER.

Contact Information

  • ESVEE GROUP, LLC
    159 20TH ST. SUITE 3B
    BROOKLYN, NY 11232
    646.820.5777
    ESVEEGROUP.COM
    Email Contact