Get ready for a lot more talk about the impact of the looming budget sequester, due to kick in on March 1. I’ve covered the cuts in relation to defense stocks such as General Dynamics (GD) and Lockheed Martin (LMT), but there’s a whole lot more than just reducing military spending.
Courtesy of Goldman Sachs is this handy visualization of what the sequester could mean for the US economy:
(Click for larger version)
As you can see, the sequester’s cuts lop off about one percentage point of GDP in the second and third quarters — a very unhelpful contribution to the economy and, most likely, the stock market.
One can argue about the size of US government spending, and how much should be cut; but as the UK is currently showing us — and US Q4 GDP gave us a hint — slashing spending in the midst of a fragile recovery is to start on a road that could lead right back to a recession. There are reasons to be bullish about the economy, especially from the housing market, but the sequester, as Goldman shows, could seriously imperil the recovery.
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