Real Federal purchases seen to rebound, discretionary outlay growth restricted

Federal purchases are expected to witness a rebound amid restrictions in the discretionary outlay growth. Discretionary outlays have seen a boost as a result of last year’s budget deal, but this increase remains modest relative to the growth in mandatory spending, Wells Fargo Securities reported.

Despite real government purchases increasing at an annualized 1.2 pct in the first quarter of the current fiscal, state and local governments seem to have contributed entirely for this rise.

The Federal component witnessed the sharpest decline since Q4 2014 by around 1.6 pct. However, some rebound in the next quarter is expected to be seen in the area of national defense spending, which declined 3.6 pct on an annualized basis.

New defense orders surged by nearly 50 pct in March, which is expected to cause procurement outlays to jump in the coming months. In addition, transportation spending has been a leader among discretionary categories, rising 3.6 pct fiscal-year-to date, the report said.

"Our outlook for federal purchases remains modest, as long-term structural budget challenges, primarily rising costs associated with entitlement programs and interest expenses, restrain discretionary outlay growth," Wells Fargo Securities commented in research note.