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Popes and Chinese leaders and the like come and go through history and through Washington, but the basic developments shaping the U.S. economy keep rolling on – and not for the better. So I’ve decided to focus today on those that have been revealed by the latest government report on the economy’s growth rate, and on two especially disturbing takeaways.

The first should be familiar to RealityChek readers: The makeup of the U.S. economy is still excessively dominated by personal consumption and housing, the same toxic combination that inflated the bubble of the previous decade whose bursting nearly collapsed the American and global economies. The second is less familiar largely because it’s much newer – and because the media hasn’t picked it up yet: Government spending is now unmistakably making a comeback as a significant growth driver – but not where you might think.

Although President Obama, as I’ve noted, has done a great job in identifying the need to create an “economy that’s built to last” in America, consuming and housing still comprise a bigger share of the total economy than during that bubble decade. When the recession started, at the end of 2007, these two components of the inflation-adjusted gross domestic product GDP) added up to 71.16 percent of the economy after inflation.

Thanks largely to the recession and housing bust (which fed on each other), this share fell to 70.94 percent by mid-2009, when the recovery officially began. That drop of course wasn’t big, but at least it represented progress. Since then, however, the numbers have resumed moving in the wrong direction. So it was welcome to learn, last Friday morning, that the economy grew at a solid 3.90 percent annual rate in the second quarter of this year, according to the government’s final (for now) reading. But less decidedly less encouraging was learning that the personal spending and housing share of the economy had hit 71.65 percent.

Indeed, that’s only slightly lower than the 71.67 percent figure for the first quarter, and considerably higher than the 71.13 percent during the second quarter of 2014 and the 71.19 percent of the second quarter of 2013.

The new prominence of government as a growth engine isn’t good news, either – that is, if you believe that the private sector is the nation’s best hope for better and sustainable prosperity and living standards (which you should).

That latest second quarter GDP report estimated that government spending at all levels in the United States grew at a 2.60 percent annual rate during that three-month period – its best performance by far since the 2.90 percent advance in the second quarter of 2010, when government stimulus spending was fueling much of the emerging recovery. Just as important, the second quarter government spending gain represented the third such rise in the last five quarters. You’d need to go back to the recovery’s earliest stages, starting in mid-2009, to find a stretch like that.

Government’s contribution to real growth, therefore, has picked up notably, too. According to the (for now) final reading for the second quarter of this year, government’s growth accounted for 0.46 percentage points if the 3.90 percent overall annualized expansion. That’s 11.79 percent of total economic growth. As with the government growth rate as such, that’s the biggest growth contribution in absolute terms since the second quarter of 2010, although then, government’s growth role accounted for 15.35 percent of that quarter’s (identical) 3.90 percent real expansion.

Also as with government’s growth per se, government’s contribution to growth has now been positive for three of the last five quarters – which hasn’t been seen since that early, public-spending-led phase of the current economic recovery. Significant as well – the government contribution to growth during this year’s overall strong second quarter has been much greater than in the last quarters when growth has been impressive.

For instance, in the second quarter of 2014, when annualized real growth clocked in at 4.30 percent, higher government spending only generated 7.67 percent of that growth. In the following quarter, the economy’s hot streak continued, but the government spending increase came to only 4.57 percent of that improvement.

One other important aspect of the resurgence of government spending: It’s happening largely on the state and local level, and this was especially the case during the second quarter. During that period, state and local government spending in real terms grew by 4.30 percent on an annualized basis – the fastest rate since way back in the fourth quarter of 2001. Federal spending was literally flat. 

To repeat a point I’ve made before: Nothing in this or previous posts should be taken as an argument that government spending is either “good” or “bad,” or that government now, at whatever level, is spending too little or too much. But again, if you consider the private sector to be likelier to generate healthier growth than government, the public sector’s increasing role in fostering economic vigor should be a matter of concern. The big remaining questions facing the nation is whether this rebound represents a return to pre-financial crisis norms, and whether that in and of itself should be praised or condemned. You can bet I’ll be weighing in on that matter before long!

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