US Commerce Secretary Pushes for Change in How GDP Is Calculated

Image Credit: Reuters

U.S. Commerce Secretary Howard Lutnick announced on Sunday that he plans to exclude government spending from the Gross Domestic Product (GDP) report, although he did not specify when the change would occur. Lutnick dismissed concerns about a potential recession, arguing that GDP figures are often skewed due to government spending being included.

During an interview on Fox News Channel’s Sunday Morning Futures, Lutnick explained, "Governments historically have messed with GDP," and emphasized the need to separate government spending to enhance transparency. He added that spending by the government, such as purchasing military equipment, is counted as part of GDP, but administrative costs, like paying employees to work on purchasing decisions, shouldn't be.

When asked about the impact of Trump’s policies, including tariffs and spending cuts, on the risk of a recession, Lutnick responded, "No, no, no." However, there have been growing concerns that weakening business and consumer sentiment could push the economy into contraction, particularly in the first quarter.

Federal government spending represents around 6.5% of the GDP, contributing a small portion to the overall growth in the fourth quarter, largely due to defense spending. Lutnick criticized certain government spending as "wasted money" and suggested it does not reflect true economic output.

Some economists have expressed concerns about the proposed changes to GDP calculation, warning that it would create more economic volatility and obscure an accurate picture of economic health. Sung Won Sohn, a finance professor, noted that removing government spending could distort GDP data, especially during recessions when government expenditure typically increases. He emphasized the importance of maintaining the current system for meaningful comparisons across time and between global economies.

Paraphrasing text from "Reuters" all rights reserved by the original author