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States, Cities May Suffer From U.S. Spending Cuts, S&P Says

U.S. state and local economic growth may be harmed more next year than previously estimated in part because of bigger spending reductions from the federal government, according to Standard & Poor’s.

The nation’s economy will grow at a 1.8 percent pace in 2013, less than the 2 percent predicted in July, the New York- based ratings company said in a report released today. S&P didn’t give a projection for overall state and local government growth next year.

Five of the nine U.S. regions tracked by S&P will see lower gross domestic product in 2013 compared to this year, according to the report. There’s a 25 percent chance of another recession within the next 12 months, S&P said.

“Our extended forecast horizon, which looks at economic prospects for 2013, shows an economy poised for even slower growth overall,” S&P analysts including Gabriel Petek said in the report. “Governments with limited revenue-raising ability, greater economic reliance on exports, and greater economic or fiscal reliance on federal spending would be most affected.”

The projected decline in growth comes as the forecast for lower federal spending widened to 3.2 percent next year from an earlier projection of 3 percent, according to the report. States and cities have cut 3.2 percent of their payrolls since August 2008 amid the worst recession since the 1930s.

The areas of the U.S. projected to face slower economic growth are: New England, Middle Atlantic, East North Central, West North Central and Pacific. The South Atlantic, East South Central, West South Central and Mountain regions will have increased GDP in 2013, according to the report.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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