U.S. Commerce Secretary Howard Lutnick confirmed on Sunday that he plans to remove government spending from the calculation of Gross Domestic Product (GDP), though he did not specify when the change would take effect. Speaking during an interview, Lutnick emphasized the need for greater transparency, claiming that government spending should not be counted as part of GDP.
“Governments have historically manipulated GDP by including government spending,” Lutnick said. “I’m going to separate those two and make it transparent.”
When asked if he feared that the Trump administration’s policies—such as tariffs on imports and aggressive government cuts—might push the U.S. economy into a recession, Lutnick rejected the notion. “No, no, no,” he replied, dismissing recession concerns.
Despite Lutnick’s optimism, economic indicators have raised alarms about the U.S. economy. Business and consumer confidence have significantly weakened in recent months, erasing the post-election gains seen after President Donald Trump’s victory. Data on consumer spending and trade deficits have heightened concerns that the economy may contract in the first quarter of 2025.
Government spending accounts for roughly 6.5% of GDP and contributed 0.25 percentage points to the 2.3% annualized growth rate for the fourth quarter, largely due to defense expenditure. Lutnick argued that while purchases like military tanks should count toward GDP, spending on administrative roles, such as those employed to assess military purchases, should not. He referred to the latter as “wasted money,” further justifying his stance on excluding government spending from GDP.
Additionally, the Trump administration’s initiative to reduce federal workforce numbers, led by tech billionaire Elon Musk’s Department of Government Efficiency (DOGE), has fired tens of thousands of federal employees in an effort to eliminate what the White House describes as government waste.
However, economists have expressed reservations about Lutnick’s proposal, warning that removing government spending from GDP calculations would create economic instability and uncertainty. Sung Won Sohn, a finance and economics professor at Loyola Marymount University, cautioned that the change would make it more difficult to gauge the health of the U.S. economy.
“I don’t think the stock market or the financial markets would like that,” Sohn remarked, pointing out that excluding government spending could make GDP volatile and reduce its comparability to other global economies. He added that such a change would obscure the full picture of economic growth.
Sohn further explained that during economic downturns, the government typically increases spending, which would help stabilize GDP figures. Without accounting for government spending, GDP would no longer provide an accurate reflection of the economy’s performance over time.
“It’s imperative that we keep the current system,” Sohn said, emphasizing the importance of tracking economic progress through comparisons with past years. “We need to learn from our mistakes and understand how well we are doing over time.”
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