Federal Spending Proves to be POSITIVE over Short term

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The outcome of having an abundance of cash on a business’ balance sheets helps business investment spending to be most likely positive. According to the BEA, the after-tax corporate profits reached a record high of $1.58 trillion in 2011, and profits look to be even higher in 2012. In conclusion, profits had peaked at $1.1 trillion in the pre-recession year of 2006. Although banks are being extra cautious about who they lend their cash reserves to, they are still aiding businesses financially to increase their spending.

Another part of the investment out-look is related to housing, which is more formally defined as residential investment. According to recent studies, housing investment grew by 20.5 percent in first quarter 2012 and 8.5 percent in second quarter 2012.

The housing sector is proving to be impressive with the broader measure of overall GDP growth at fewer than 2 percent, the high single-digit and double-digit pace of expansion. Furthermore, as residential prices recover the value of owner-occupied real estate is increasing during the first and second quarters of 2012.

Federal government spending proves to be a positive contributor to economic growth over the short term. Spending on infrastructure or buying a helicopter or tank typically results in people working and in additional income generation. The debate over the federal budget currently focuses on the rate of future increases in spending—not the actual cutting of current expenditures. Given that the bulk of expenditures are required by and fixed by law it is unlikely that the federal budget will decline much in terms of overall expenditures, given that the bulk of expenditures are required by and fixed by law.

 

 

Sources: NAREIT, Retail Traffic, Deloitte, National Association of Realtors, NREI, P&I, Builder on Line, ENR, BEA, HAVER analytics, august 28, 2012

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