The poor performance of the U.S. economy actually got much worse late last year, according to the first estimate of fourth quarter gross domestic product from the U.S. Bureau of Economic Analysis.
Real GDP growth slowed dramatically in the fourth quarter to a mere 0.7 percent. That compares to a sluggish 2 percent growth in the third quarter and 3.9 percent increase in the second. Indeed, 2015 was sandwiched by two dismal quarters — 0.6 percent first quarter growth and 0.7 percent in the fourth. For the entire year, real GDP advanced by 2.4 percent for the second year in a row.
Looking closer at the fourth quarter data, the negatives were widespread.
Overall private investment dropped 2.5 percent. Business investment — that is, real fixed nonresidential investment — fell by 1.8 percent, with structures investment down 5.3 percent and equipment off 2.5 percent. Intellectual property investment inched ahead by
1.6 percent. Residential investment was up by 8.1 percent, perhaps the only positive number in this quarterly report.
On the trade front, real exports fell by 2.5 percent, showing diminished international opportunities for U.S. businesses. Meanwhile, real imports edged forward only 1.1 percent, which reflects the slow growth in the domestic economy. Exports suffered throughout 2015, while imports slowed dramatically over the year.
Some analysts were pleased with
2.2 percent growth in the fourth quarter for personal consumption expenditures. I’m not sure why, though. That was a dramatic decline from both the second and third quarters and in general constitutes a sluggish number.
The bottom line is the U.S. economy slowed dramatically in the second half of 2015, particularly in the fourth quarter. And that slowdown was from an already poor level of growth.
In my Small Business & Entrepreneurship Council outlook for 2016, I concluded: “Looking ahead, without dramatic shifts in tax, regulatory, trade and government spending policies in a pro-growth direction and a change in monetary policy to being focused on price stability, few reasons exist to expect anything more than a continued underperforming economic recovery. This assessment is not about diminished expectations. Indeed, it is the antithesis to such assumptions. If the U.S. gets the policy mix right, there’s no reason that the economy can’t grow at the historic average of 3.3 percent annually, or even the 4.4 percent average achieved during recovery expansion periods …
“In fact, the potential for additional regulation during (President Barack) Obama’s last year in office, along with serious questions about the U.S. industrial sector and trade, notable downside risks lurk for the 2016 economy. To be sure, the state of the U.S. economy beyond 2016 will be decided by the ideas offered by presidential and congressional candidates and by voters at the ballot box in November 2016.”
One other point is worth considering for 2016. Entrepreneurs, businesses and investors have been operating in an environment of increasing governmental costs and uncertainties for more than eight years now. By definition, some kind of change will occur with the November elections. But since the exact nature of that change is highly uncertain, the risk of added political and policy uncertainty this year could further weigh down risk taking and economic growth.
Again, the economic risks for 2016 clearly lie on the downside, with the possibility of a recession in the mix.