ECONOMIC

A shortfall in Federal spending of about $3 billion, distributed over ayear as shown in Table 16, could be expected to produce a decline in theannual growth rate of real GNP of roughly 0.2 to 0.3 percentage point.Because the shortfall was not sustained throughout the year and because amajor portion was in transfers, which have a low GNP multiplier relative topurchases, the expected impact of such a change would be smaller. But itdoes help explain the weakness in the economy after the spring of 1976.The Federal expenditure shortfall was concentrated in the second quarter(Table 16). By the third quarter the underspending was much reduced, andin the fourth quarter total spending was substantially above projected levels.TABLE 16.—Federal expenditure shortfall, national income and productaccounts, calendar year 1976[Billions of dollars; quarterly data at seasonally adjusted annual ratesi)Category1976Yeara II IIITotal expenditures-2.8-5.5-13.8-1.810.0Purchases of goods and services..-2.0-3.5-4.6-.4.5National defense..NondefenseTransfer payments..To personsTo foreigners..Grants-in-aid to State and local governments.-~L5-.9-.2.7-1.4-2.2-2.8-2.2-.6.4-.7-4.0-4.7-3.8-1.0-3.0.0.0.6-.5-.9.1.43.74.46.3Net interest paid-1.1-.3-.9-1.3-1.6Subsidies less current surplus of government enterprises.5.8-.51.11 Actual expenditures less adjusted January 1976 projections. See note below.2 Preliminary.Note.—January 1976 Quarterly projections have been adjusted to revised 1976 data by multiplying the adjusted annualprojection (see Table 15) by the ratio of the original quarterly projections to the original annual projections.Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis), Office of Management and Budget, and Council ofEconomic Advisers.The shortfall can be attributed to a combination of lower-than-expectedrates of inflation, unemployment, and interest, as well as to delays in makingnew obligations and outlays and to an apparent bias toward overestimationof expenditures in the budget. The obligation and payment lags primarilyaffected purchases, particularly for defense, where unused obligationalauthority unexpectedly rose about $10 to $12 billion in the 15-monthperiod between July 1,1975 and September 30, 1976. Obligation delays werealso responsible for the slowdown in the Federal highway aid program,which affects the grant component of total expenditures. The spending overrunin the last quarter of 1976 was almost entirely in transfers and grantsand was due to legislation which differed from that assumed in January.This increase does not appear to have been the result of spending delayedfrom earlier in the year.72