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U.S. Cities and States Start Spending Again

Rich Miller and William Selway, Bloomberg Businessweek, January 10, 2013

State and local governments in the U.S. used to be steady employers. Mass layoffs were a rarity. Then came the 2007–09 recession, and those governments slashed half a million workers, becoming an immense drag on growth.

Now things are looking up. State and local agencies will add employees in 2013, says Mark Zandi, chief economist at Moody’s Analytics (MCO). Their payrolls in the fourth quarter will be 220,000 larger than the same period in 2012, he projects. Spending on new parks, schools, roads, and the like will rise 1.8 percent, triple the increase last year, according to projections by St. Louis-based Macroeconomic Advisers. “The bloodletting on the state and local government level has finally passed,” says Jim Diffley, chief U.S. regional economist for IHS Global Insight (IHS). “They’re no longer subtracting from growth.” The shift will help the U.S. weather the blow from federal tax increases and spending cuts, Moody’s Zandi says.

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