On Wednesday, the government announced that the economy had shrunk at a 0.1 percent annual pace between October and December. That came as a surprise to most economists, who were expecting at least modest growth. So what happened?

Less spending from the Pentagon, for one. Government defense expenditures plunged by a staggering 22.2 percent between October and December. According to the Bureau of Economic Analysis, the Pentagon spent significantly less on just about everything except military pay. Had the Pentagon not cut back on spending, the economy would have grown at a weak but positive 1.27 percent pace.

Was this big plunge in defense spending unusual? Yes and no. To a certain extent, it’s part of a pattern: Defense spending often rises in the third quarter of a year and drops in the fourth quarter. Here’s a graph of the quarterly change in defense spending since 2010. Note the usual highs in September and lows in December of each year:

Continued reading:  http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/30/why-defense-spending-dropped-22-last-quarter-and-shrunk-gdp/

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2 thoughts on “Why defense spending plunged 22% last quarter — and killed GDP

  1. This does show how government spending affects the economy in dramatic fashion. Deficit hawks ought to be careful what they wish for…


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