The chart above shows annualized growth rates for: a) the quarterly, non-government, private-sector components of real GDP (personal consumption expenditures, gross private domestic investment, and net exports), see blue bars in chart, and b) the quarterly component of real GDP for “government consumption expenditures and gross investment” (brown bars).
First Trust Portfolios (Brian Wesbury et al.) is the only organization I know that calculates and reports “private real GDP” on a regular basis, here’s their most recent commentary: “We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year.”
In the second quarter of 2012, “public sector GDP” decreased -1.44%, and that was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years. Most of the decline in government spending over the last few years has come from cuts in defense spending at the federal level, and ongoing cuts in government spending by local and state governments.
So maybe it’s true that the “private sector is doing fine” and most of the sub-par economic growth measured by real GDP is simply reflecting the decreases in government spending, and not weakness in the private sector? In that case, maybe the sub-par recovery has some positive effects of shrinking government? And why don’t more economists, analysts, and reporters calculate and report private- and public-sector economic growth separately?
Update: See related post by Catherine Rampell at Economix Blog, “‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking.”