Cutbacks in defense spending as well as the seeming end to fiscal stimulus programs by the Federal Reserve have contributed to the slowing economic recovery. Congress seems to be in a stalemate regarding the anticipated fiscal cliff which would put into effect billions of dollars’ worth of spending cuts and new taxes.
Fed Chairman Ben Bernanke have warned that allowing the current laws to expire will throw the US economy back into recession.
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Federal spending and investment is already down to a .4% rate, which is down 3.3% over the past year. Federal employment jobs have decreased by 52,000 over the past year and is now lower than before the recovery began.
For the long term, decreased federal spending along with increases in taxes should help the federal deficit. But in the short term, it is already affecting the recovery adversely. The cuts affect infrastructure spending at both the state and local levels, offsetting growth in the private sector which has been steady.
And stimulus funds for short term relief are dwindling. In 2010 and 2011, $180.7 billion were given to state and local governments. In 2012, that shriveled to just above $20 billion. For 2013, stimulus funds are expected to fall to $14.3 billion.
Federal employment is falling for the first time since the 2008 crisis, primarily among postal workers. Public sector jobs fell into negative growth
for the fourth month in a row in June. Overall, the economic pictures still hangs precipitously upon Europe and Congressional action toward the expiration of current tax laws.