We shouldn’t underestimate the ability of the sequester to slow the economy and weigh down GDP. The $85 billion cut in discretionary spending this year is only 2.4% of total federal outlays over the past 12 months of $3.58 trillion. However, those outlays include $2.19 trillion in spending on entitlements, which are a redistribution of income that doesn’t have a direct impact on GDP through its federal government component. Federal government spending in GDP, in current dollars, was $1.20 trillion (saar) during Q4-2012. That’s where the sequestration cuts will hit, as they account for 7.1% of this total.
Today's Morning Briefing: Echo Panic. (1) A fourth year of same-old-same-old worries? (2) Euro Mess, Sequester Drag, and China Syndrome--again. (3) The Italian job. (4) Monti is no longer so super. (5) Spending cuts will weigh on US GDP. (6) China will grow. (7) Bernanke will be dovish this week. (8) Revenues had a good Q4. (9) Forward earnings at new record highs again. (More for subscribers.)