The Obama administration is alerting domestic agencies to expect their budgets will be frozen or even cut by 5 percent, part of an election-year push to rein in record deficits that threaten the economy and Democrats' political prospects next fall.
This blog has identified that FY 2009 GDP was favorably affected by the year over year increase in Federal spending in this post. Last year's increase in "real" Federal spending was equivalent to 4.4% of the previous year's GDP. If the administration makes across-the-board 5% cuts as the idea floated in this article suggests, this year's "G" contribution to GDP will be impacted.
Review: Y = C + I + E + G where
Y = GDP, C = Consumer Spending, I = Investment made by industry, E = Excess of Exports over Imports, G = Government Spending. The component amounts of GDP need to be sustained or grow year over year or GDP will fall (bad!).
FY 2009 real Federal spending came in at about $4T, a 5% cut would mean a $200B reduction for FY2010 or equivalent to negative 1.43% of our $14T GDP. Ironically, this potential $200B reduction would negate the positive effects of the "stimulus" which have been running at about a $200B annual rate.....hello 12% unemployment?
This could be just political posturing by Obama administration officials, one way to tell is to keep watching the daily/weekly/monthly fiscal information released by the Treasury Dept.