Since officially moving from recession to recovery in mid-2009, the story on the U.S. economy hasn’t changed. Two new reports indicate the challenges won’t change as a new presidential administration and Congress take power.
The U.S. Bureau of Economic Analysis released its second estimate on third quarter GDP. The topline story offered a bit of good news in that real growth for the third quarter was revised from 2.9 percent to 3.2 percent. That’s the fastest rate since the third quarter of 2014.
The upward revision was all about a move up in personal consumption. What’s been talked about little, if at all, is the fact there were downward revisions in private investment. Growth in real gross private domestic investment was downgraded from 3.1 percent to 2.1 percent. Fixed nonresidential investment — that is, business investment — was revised down from an already woeful 1.2 percent to a mere 0.1 percent. In effect, no growth. While nonresidential structures investment growth in the third quarter was revised up from 5.4 percent to 10 percent, equipment investment was taken lower from a negative 2.7 percent to a negative 4.8 percent.
While private investment has grossly underperformed since 2006, it must be noted private business investment growth has once again slipped into abysmal territory since the fourth quarter of 2014. A lack of strong private investment has been a key factor in our poor economy, making this one of the worst recovery and expansion periods on record.
Meanwhile, the Federal Reserve released its latest Beige Book on the economy. That report, based on assorted business and other non-Fed contacts in each district of the Federal Reserve, spoke of “modest” or “moderate” growth in various regions. The book reported: “Activity in the Boston, Minneapolis and San Francisco districts grew at a moderate pace, while Atlanta, Chicago, St. Louis and Dallas cited modest growth. Philadelphia, Cleveland and Kansas City cited a slight pace of growth. Richmond characterized economic activity as mixed, and New York said activity has remained flat since the last report.”
In effect, this latest data and reporting from the BEA and Fed reinforce the idea the economy continues to slog forward at a growth rate far below historical levels. Consider that real growth averaging only 2.1 percent during this recovery is less than half the average 4.3 percent rate that has prevailed during recovery and expansion periods over the past six decades.
Are we doomed to slow growth, as various so-called experts proclaim? Of course not. The problem for nearly nine years now has been misguided federal policymaking that has raised costs and created more uncertainty for small business owners and all businesses via higher taxes, increased regulation, the threat of even more burdensome taxes and regulation, loose monetary policy not focused on price stability and a lack of leadership in advancing the effort to reduce governmental barriers to international trade. Policies that create uncertainty and poor results on the economic front obviously don’t give rise to the confidence needed for individuals to start businesses. That’s why levels of new business creation remain poor.
If President-elect Donald Trump and the new Congress reverse the current policy course and instead advance a solid agenda of substantive, permanent tax and regulatory relief and reform and lowering trade barriers, along with Trump selecting Fed governors who will focus on price stability, the foundation will be laid for stronger and sustainable economic growth.
The economic challenges of recent years haven’t changed. We need major policy changes to reverse course.