Judging by the mammoth federal deficit, fiscal policy appears to have been highly stimulative. But economist Edward S. Hyman of International Strategy & Investment Group Inc. argues that there's been less stimulus from the government sector than meets the eye.
Hyman calculates that real federal spending (excluding transfer payments) was down 4.8% and 5.1% in the first and second quarters from its year-earlier levels. Counting real state and local spending, which rose about 1.9% in the first half, total real government spending has now declined on a year-to-year basis for three straight quarters, the longest stretch of declines since 1976.
To be sure, real government outlays including transfer payments are up 3.5% over the past year, says Hyman, "but economists believe such payments tend to shore up the economy rather than provide fiscal thrust." Indeed, he notes that while real gross domestic product grew only 1.5% between the first halves of 1991 and 1992, the private economy (excluding the declining government sector) posted growth of 2.2%.