PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Economic Challenges Have Not Changed – Policies Need to Though

By at 1 December, 2016, 12:21 pm

economy 

by Raymond J. Keating-

Since officially moving from recession to recovery in mid-2009, the story on the U.S. economy has changed very little. And two new reports indicate that the challenges will not change as a new presidential administration and new Congress take power.

The State of GDP Growth

On November 29, the U.S. Bureau of Economic Analysis released its second estimate on third quarter GDP. The topline story offered a bit of good news, specifically, real growth for the third quarter was revised up from 2.9 percent to 3.2 percent. That’s the fastest rate of growth experienced since the third quarter of 2014.

Private Investment Down

The upward revision was all about a move up in personal consumption expenditures. What has been talked about very little, if at all, is the fact that there actually were downward revisions in private investment. Specifically, growth in real gross private domestic investment was downgraded from 3.1 percent to 2.1 percent. Fixed nonresidential (i.e., business) investment was revised down from an already woeful 1.2 percent to a mere 0.1 percent – in effect, no growth. And while nonresidential structures investment growth in the third quarter was revised up from 5.4 percent to 10.0 percent, equipment investment was taken lower from -2.7 percent to -4.8 percent, and intellectual property investment growth went from 4.0 percent to 1.0 percent.

While private investment has grossly under-performed since 2006, it must be noted that private business investment growth has once again slipped into abysmal territory since the fourth quarter of 2014.

Given that a lack of strong private investment has been a key factor in our poor economy – for example, making this one of the worst recovery/expansion periods on record – these numbers continue to point to an ongoing problem that needs to be remedied.

The Fed’s Steady Take on the Economy: “Modest” or “Moderate” Growth

Meanwhile, the Federal Reserve released its latest Beige Book on the economy on November 30. That report, which is 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 of the nation, as has been the case with recent Beige Book reports. Specifically, it was summed up: “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 the Fed reinforce the idea that the U.S. economy continues to slog forward at a growth rate far below where it should be during a recovery/expansion period. 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/expansion periods over the past six decades.

What Does the Future Hold? It all Depends on Policy

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 do not give rise to the confidence that is needed for individuals to start businesses. That is why U.S. levels of new business creation remain poor.  Again, policies need to move in an entirely different direction.

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 Mr. 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 have not changed. We need major policy changes to reverse course.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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