Poor Economic Growth in 2016, and What’s Ahead
By SBE Council at 27 January, 2017, 1:01 pm
by Raymond J. Keating-
Economic growth during the last quarter and final year under President Barack Obama was, unfortunately, dismal.
A Story of Weak Economic Growth
Real GDP in the fourth quarter of 2016, according to data released on January 27 by the U.S. Bureau of Economic Analysis, came in at a mere 1.9 percent, and for all of 2016, real GDP growth registered a woeful 1.6 percent. After the recession came to a close in 2009, that 1.6 percent growth tied for the slowest annual growth rate during this poor recovery.
Since this period of recovery/expansion began in mid-2009, real GDP growth has averaged only 2.1 percent. That compares to an average rate of 3.1 percent over the past six decades, and an average rate of 4.3 percent during periods of recovery/expansion. That is, growth has run at a fraction of where it should be.
Another point to consider is that throughout his eight years in office, real annual GDP growth never exceeded 2.6 percent (2015). No other president since Herbert Hoover has registered such a poor performance in terms of annual GDP growth.
As for the fourth quarter data, consumption slowed compared to the previous two quarters, nonresidential (or business) investment inched ahead by only 2.4 percent (having now performed poorly for over two years), and exports were down by 4.3 percent (biggest drop since the first quarter of 2015). On the positive side, residential (housing) investment grew by 10.2 percent, and imports were up by 8.3 percent (indicating a big of life in the domestic economy).
While President Obama most certainly was dealt a very bad economic hand upon entering office, his subsequent policy decisions worked to undermine any robust economic recovery, as he focused on increasing regulatory burdens and taxes, expanding federal spending and debt, and largely abandoning U.S. leadership in advancing free trade. Raising costs and creating negative uncertainty for business and investors, and diminishing incentives for entrepreneurship is not a sound economic agenda. The result of one of the worst economies on record should have surprised no one.
The Future of U.S. Growth
Looking ahead, polls have pointed to an increase in small business optimism since Election Day, and that’s most welcome. However, the Obama economy will not be transformed immediately.
Indeed, as it takes time to change policies, the Obama economy likely will linger for a bit. The speed and substance of positive policy changes from the Trump administration – such as pro-growth tax and regulatory relief, and reining in government spending – will play a central role in creating a dramatically improved domestic policy environment upon which business, investment, entrepreneurship and the economy can grow. At the same time, early actions and statements from President Trump on international trade are adding negative uncertainties to business and investment decisions.
As with the past Administration, the future of growth will be dictated by actual policy actions – entrepreneurs are certainly hoping for growth-oriented ones from the new Administration that support their businesses and aspiration for growth.
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.