Why Government Spending is The Biggest Boost for the U.S. Economy

Brian Poncelet

The Wall Street Journal recently released their analysis of Commerce Department Data. What it showed was that the United States government has been spending more on defense as of late. Brian Poncelet reports that an overall increase in government spending has had a domino effect of sorts that has helped create U.S. economic growth over the last eight months.

Since April of ’17, the United States economy expanded at an annual rate just below three percent. The Wall Street Journal analysis concludes that an increase in government spending accounts for about half of the acceleration. President Trump has put an emphasis on spending on U.S. defense. U.S. Defense spending came in at 2.1 percent annually between June of 2009 and March of 2017. Since that time period, annual spending is up to 2.9 percent.

Like most elections, economic growth is an essential part of the debate in the upcoming midterm elections. Republicans and President Trump point to tax cuts and a reduction of regulations for the accelerated growth. Democrats are simply arguing that current growth trends are unsustainable. Either way, increased defense spending is not getting much attention from either side of the political aisle.

Todd Harrison, a senior fellow and defense budget analyst at the Center for Strategic and International Studies explains why defense spending is up saying, “There really had been some pent-up demand within the Department of Defense for modernization, for training, for maintenance.” Harrison continued, “Now [with] the sudden increase in the budget in fiscal year 2018 and fiscal year 2019, you see some of that pent-up demand being unleashed in the market.”

There is now bipartisan agreement on a budget to boost government spending in 2019 and 2020 by nearly $300 billion more the limit of a 2011 law. $165 billion will go straight to the military. Bigger projects like aircraft carriers take longer to build and will show up in quarters down the line. Lockheed Martin Corp., announced recently that they expect their revenue to increase about six percent this year thanks to America’s demand for missiles and F-35 combat jets. Boeing Co., the largest aerospace company in the world, has seen their sales projections rise because of their work on different U.S. defense projects.

It’s not only huge corporations that are feeling the effect of increases in defense spending, smaller businesses are also impacted. J & R Tools Inc., which is a machine shop in Loogootee, Indiana, works mostly as a contractor to the Navy. They have reported that they have had to hire more employees to meet the needs of the increased work, which is all linked back to a rise in government spending.

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