Government Spending Could Be Excluded From GDP Data, Commerce Secretary Says

Howard Lutnick’s remarks echo what Elon Musk, director of the Department of Government Efficiency (DOGE), stated on X this past week.

President Donald Trump’s nominee for Commerce Secretary, Howard Lutnick, testifies at a confirmation hearing on Capitol Hill in Washington on Jan. 29, 2025. Madalina Vasiliu/The Epoch Times

The Trump administration could exclude government spending from future gross domestic product (GDP) reports, says Commerce Secretary Howard Lutnick.

“You know that governments historically have messed with GDP,” Lutnick said in an interview with Fox News’ “Sunday Morning Futures.”

“They count government spending as part of GDP. So I’m going to separate those two and make it transparent,” he said.

For example, the U.S. government purchasing a tank contributes to the gross domestic product, but paying staff to think about buying that same tank “is not GDP,” he said.

“That is waste and inefficiency—wasted money. We’re going to get rid of that. We’re going to show you how it is,” Lutnick added.

Lutnick’s remarks echo what Elon Musk, director of the Department of Government Efficiency (DOGE), stated on X this past week.

In response to a post about collapsing first-quarter GDP forecasts, Musk said a better gauge of GDP would omit government spending.

“Otherwise, you can scale GDP artificially high by spending money on things that don’t make people’s lives better,” Musk said.

“For example, you could shift everyone who is building cars to working at the DMV. That would result in no cars and a much worse standard of living, but GDP would appear to be the same!”

Over the years, many economists have expressed dissatisfaction with the GDP, calling it a flawed and misleading tool for determining the economy’s health.

Eminent economist Ludwig von Mises noted in his seminal 1949 book “Human Action” that estimating a nation’s entire wealth was a futile endeavor.

“The attempts to determine in money the wealth of a nation or of the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimensions of the pyramid of Cheops,” he wrote.

But while fresh concerns about GDP growth begin, Lutnick says he is optimistic that the new administration will balance the budget and lower interest rates to bolster the economy.

“This is going to be the best economy anybody’s ever seen. And to bet against it is foolish,” he said.

Understanding GDP

GDP measures the total value of goods and services produced in the economy over a specific period.

Government expenditures have long been inserted into GDP calculations because adjustments to deficits, spending, and taxes by the government can impact economic activity.

Over the last few years, federal outlays have represented a larger share of GDP growth rates. In 2024, net federal expenditures as a percentage of GDP were more than 23 percent. By comparison, they were about 20 percent before the pandemic.

Additionally, government spending generally accounted for about one-fifth of the public’s personal $24.6 trillion income last year. This metric features benefits or payments from Social Security, Medicare, Medicaid, and other federal programs.

The Bureau of Economic Analysis also publishes a separate measure of GDP excluding government spending, known as Value Added by Private Industries, or VAPI. This statistic highlights the value of employee compensation or gross operating surpluses to the economy.

“It was 4.8 percent in the third quarter, down from nearly 7 percent in the same time in the previous year,” the bureau said.

Data Trends

Recent administration efforts to scale back the size of federal agencies could result in layoffs of federal employees, which could have a broader effect on the U.S. economy.

But while DOGE-related efforts have captured the national spotlight, terminations of federal staff have yet to appear in the labor data.

In the third week of February, the number of Americans filing for unemployment benefits increased by 22,000 to 242,000, the highest level in more than two months, according to the Department of Labor.

Market watchers have been waiting for fired federal government employees to appear in the initial jobless claims data. However, experts say that fired federal government employees are not included in state claims statistics and would instead show up in the Unemployment Compensation for Federal Employees (UCFE) program.

This data point indicates 614 initial claims in the same period.

As for the broader economic landscape, recession talk has returned to Wall Street, with a market rout fanning the flames.

The Federal Reserve Bank of Atlanta’s GDPNow Model forecasts a 2.8 percent contraction in the first three months of 2025. The widely watched metric previously had been in positive territory for weeks. The sudden collapse was driven entirely by a sharp decline in net exports and a modest drop in residential investment.

Compared to other metrics, the Atlanta Fed’s tool is an outlier.

The New York Fed Staff Nowcast still signals a 2.9 percent reading for the first quarter. The Dallas Fed’s Weekly Economic Index indicates a 2.4 percent expansion in the current quarter.

“Trumpcession” talk is gaining public attention as economists discuss stagflation risks—a blend of stagnating growth, rising unemployment, and elevated inflation. Other market observers say the recent jitters hitting Wall Street are just noise.

Whatever the case may be, “get your hardhats ready,” says Mark Malek, the CIO at Siebert Financial.

“It is clear that Trump is serious, so we had better take notice,” Malek said in a note emailed to The Epoch Times, adding that there are many variables.

“Will these tariffs stand long enough to affect prices? Will all this worry continue to decay consumer confidence and consumption to the point where a recession may ensue? What about the Fed?” he said.

“Well, the folks over at the Big Bank are certainly nervous right now. They know that inflation results from tariffs, and they also know that declines in confidence and consumption cause economic declines.”