ECONOMIC REPORT OF THE PRESIDENT

Box 2-1: Challenges in the State and Local Sector
During the current expansion, growth in State and local purchases
has been the weakest of any business-cycle recovery in the post-World
War II period (Figure 2-i). Although in a typical recovery State and
local spending tends to grow quickly and at a similar pace as in the prerecession
period, in the current business cycle, State and local spending
sharply contracted and, after seven years, has still not rebounded to
its pre-crisis levels. During the four quarters of 2010, State and local
purchases subtracted 0.5 percentage point from GDP growth, and then
subtracted about another 0.3 percentage point in both 2011 and 2012.
Spending in this sector stabilized in 2013, added modestly to GDP
growth during the four quarters of 2014 and 2015, and had a negligible
impact on GDP during the three quarters of 2016.
Real State and local government consumption expenditures, gross
investment (particularly investment in structures), and employment
(particularly in the education sector) remain below their pre-crisis levels
(Figure 2-ii). Real State and local government consumption expenditures—which
consists of spending to produce and provide services to
the public, largely public school education—remains 2.8 percent below
its peak in 2009:Q3. Real State and local government gross investment—
which consists of spending for fixed assets that directly benefit the
Figure 2-i
Real State and Local Government Purchases
During Recoveries, 1960–2016
Index (Level at Trough=100)
130
125
120
Average
115
1982
1991
110
105
2001
100
95
90
2009
85
80
-24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24 28
Quarters from Trough
Note: "Average" indicates average across recessionary periods from 1960–2007, excluding the 1980
recession due to overlap with the 1981‒1982 recession.
Source: Bureau of Economic Analysis, National Income and Product Accounts; National Bureau of
Economic Research; CEA calculations.
72 | Chapter 2