PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

First Quarter GDP: Slow Growth, But Investment Data Hopeful

By at 28 April, 2017, 10:35 am

 

by Raymond J. Keating-

The topline story on the economy from the U.S. Bureau of Economic Analysis notes that real economic growth continued to badly under-perform in the first quarter of 2017. But there also are some positives in the data that provide hope for faster growth lying ahead.

Slow Topline Growth

Overall, real GDP grew at a woeful 0.7 percent in the first quarter. That was down from poor growth (1.6 percent) for all of 2016, and off from 2.1 percent in the fourth quarter. So, in general, we’re still struggling to push growth ahead.

Dramatic Slowdown by the Consumer

The key problem in first quarter GDP came with a mere 0.3 percent growth in real personal consumption expenditures. That was down from 3.5 percent in the previous quarter, and from 2.7 percent for all of 2016.

Strong Investment Growth Provides Hope

The hope lies in solid private investment growth in the first quarter. Real gross private domestic investment grew by 4.3 percent. And inside that, real fixed nonresidential (or business) investment expanded by 9.4 percent (with structures up 22.1 percent, equipment up 9.1 percent, and intellectual property 2.0 percent), and residential investment jumped by 13.7 percent.

For about a decade, our economy has been plagued by weak private investment, as well as a decline in entrepreneurship. Indeed, when we have gotten a quarter here or there of strong investment and/or growth, it has not been sustainable. That was not surprising given how hostile the federal policy environment was toward business in general, private investment and being able to startup a business.

The Trump administration arrived with proposed policy changes – in particular, on the tax and regulatory front – that would be far more beneficial for entrepreneurship, investment and business, and therefore, for economic, income and employment growth. As long as substantive tax and regulatory relief are implemented, then investment numbers like we saw in the first quarter GDP data indeed should become sustainable. In turn, the consumer – who is a follower – will follow.

So, while 0.7 percent growth shows that the overall economy still languishes, solid private investment growth hopefully is the start of laying a foundation for strong, sustainable economic growth ahead.

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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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