US Commerce Secretary wants to remove government spending from GDP

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. Commerce Secretary Howard Lutnick said on Sunday he would strip out government spending from the gross domestic product (GDP) report, but gave no indication how soon this change might happen, while dismissing fears of a possible recession.

"You know that governments historically have messed with GDP," Lutnick said during an interview on Fox News Channel's "Sunday Morning Futures" program.

"They count government spending as part of GDP. So I'm going to separate those two and make it transparent."

Lutnick was asked whether he was concerned that the Trump administration's policies, including tariffs on imports and efforts to shrink the government through deep spending cuts and mass layoffs would push the economy into recession.

"No, no, no," said Lutnick.

Business and consumer sentiment have deteriorated in recent months, erasing gains notched following President Donald Trump's election victory in November. Data on consumer spending and the goods trade deficit have raised the risk of the economy contracting in the first quarter, fanning fears of a recession.

Federal government spending accounts for about 6.5% of GDP. It contributed 0.25 percentage point to the economy's 2.3% annualized growth rate in the fourth quarter, mostly from defense spending.

"If the government buys a tank, that's GDP, but paying 1,000 people to think about buying a tank is not GDP," said Lutnick, calling that "wasted money" as he explained the rationale for removing government spending from GDP.

Tens of thousands of federal workers have been fired by tech billionaire Elon Musk's Department of Government Efficiency, or DOGE, - an entity created by Trump to shrink and cut what the White House has called government waste.

ECONOMISTS ARE WARY

Economists cautioned against changes to the current national accounts structure as it would make GDP very volatile and difficult to get a clear view of the economy's health, creating more uncertainty.

"I don't think the stock market, the financial markets would like that," said Sung Won Sohn, Finance and Economics professor at Loyola Marymount University.

It would also be impossible to compare the U.S. economy's performance against its global peers.

Looking at the private sector alone would not give the full picture on growth, Sohn said.

"Economic growth over time would become a lot more volatile. The reason is, when the economy slows or, when we are in a recession, for example, the government spends a lot of money," he said.

Removing government spending from GDP would distort the figure as government productivity is assumed to be zero whatever the production is in the computation of GDP.

"It's imperative that we keep the current system because, we need to make comparisons, and it's important to know how well we are doing compared to a year ago, five years ago, 10 years ago, and we can learn from our mistakes," Sohn said.

(Reporting By Lucia Mutikani; Editing by Sonali Paul)