How Defense Saved Second Quarter GDP

I bought into the meme floating around earlier today and credited fiscal stimulus with playing a part in the better Q2 GDP numbers. It turns out that government spending helped a lot but not money being spent under the American Recovery and Reinvestment Act. It came from the Defense Department.

From the WSJ Real Time Economics blog:

As has already been widely reported, gross domestic product shrank at a much slower pace in the first quarter — 1% — than in the two previous quarters. It is true that government spending grew at a 5.6% annual rate for the quarter, moderating the contraction in gross domestic product.

But most of that increase came from the defense sector, not the nondefense sectors targeted by the American Recovery and Reinvestment Act. Defense spending grew at a 13.3% annual rate, in part a rebound from a 4.3 first quarter contraction. Nondefense spending grew at a 6% annual rate, contributing 0.15 percentage points to overall growth. The economy can use all of the help it can get, but it’s too soon to declare that federal spending is effectively making its way into the system.

Oh well, colour me chastised. Now should we reconsider that veto of the F-22 program?

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