US Treasury Publishes Economic Update

by Mike Godfrey, for LawAndTax-News.com, Washington

05 August 2008

The United States' Treasury Department on Friday published its economic update for Q2 2008.

The update indicated that economic growth throughout Q2 2008 has been moderate.

Real GDP growth in Q2 was 1.9% at an annual rate, up from 0.9% growth in Q1. Consumer spending added 1.1 percentage points to growth in the first quarter, and net exports added 2.4 percentage points.

These positives were partly offset by the continued drag from housing and a large inventory reduction, the Treasury announced.

It went on to reveal that strong global growth is boosting US exports, which grew 10.2% over the past four quarters, and core inflation remains contained. The consumer price index excluding food and energy rose 2.4% over the 12 months ending in June.

The country's economic stimulus package is set to help the American economy weather the housing correction and other challenges, the Treasury suggested.

The Economic Stimulus Act of 2008, signed into law by President Bush has two main elements:

• Stimulus payments so that working Americans have more money to spend; and
• Temporary tax incentives for businesses to invest and grow.

The Treasury stated that: "Together, the legislation will provide about USD150bn of stimulus for the economy in 2008, providing a meaningful boost to the US economy in 2008."

"Additionally, it is hoped that Pro-Growth Policies will enhance long-term US economic strength."

The FY07 budget deficit was down to 1.2% of GDP, from 1.9% in FY06.

Much of the improvement in the deficit reflects strong revenue growth, which in turn reflects strong economic growth.

The Mid-Session Review of the Budget projected that the deficit will be 2.7% of GDP in FY08 and 3.3% of GDP in FY09.

Looking ahead, higher spending on entitlement programs dominates the future fiscal situation; and the Treasury has admitted that it must squarely face up to the challenge of reforming these programs.

Commenting on the figures contained in the update, Assistant Secretary Phillip Swagel explained that:

"Today's jobs data reflect the headwinds affecting the US economy - the housing correction, credit market strains, and higher energy prices. Yesterday's GDP data reflect the positive impact and timeliness of the stimulus payments, which will continue to support spending as we work through these headwinds."

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