PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Economic News: Business Investment Upgraded in Second Estimate of First Quarter GDP

By at 31 May, 2018, 10:52 am

by Raymond J. Keating-

In the second estimate of first quarter GDP released by the U.S. Bureau of Economic Analysis on May 30, the topline real GDP growth number actually got a tiny bit worse – revised from 2.3 percent real growth to 2.2 percent.

The key problem remained with the consumer, with sluggish real personal consumption expenditures being downgraded slightly. Plus, residential (housing) investment was revised down from no growth to a decline of 2 percent in the first quarter.

However, there also were upgrades, and they came in key areas of business investment. Specifically, fixed nonresidential investment growth was revised up from an original estimate of 6.1 percent to 9.2 percent, including structures investment growth upgraded from 12.3 percent to 14.2 percent, equipment from 4.7 percent to 5.5 percent, and intellectual property products from 3.6 percent to 10.9 percent.

So, stepped up business investment played a key part in the growth that was achieved in the first quarter – accounting for more than half the 2.2 percent GDP growth rate. And such investment serves as a positive for future economic growth.

Of course, in terms of where the economy is head, policy matters a great deal. Specifically, is government working against private-sector investment and entrepreneurship by, for example, increasing costs, creating uncertainty and disincentivizing risk taking? That very much was the case during the years of the Obama administration, in particular with increased tax and regulatory burdens. Through the first near-year-and-a-half of the Trump administration, business tax relief, stopping the regulatory assault, and in various areas, rolling back regulatory burdens have been positives for incentivizing entrepreneurship and investment. That’s been the good news.

However, the bad news has been the Trump administration working against free trade via actual and threatened tariffs. Such protectionism is a clear negative for investment and growth.

So, policymaking from a growth perspective is at odds, with tax and regulatory measures working as positives, and anti-trade issues working as negatives.

Finally, it also must be noted that while more needs to be done in key policy areas – including further tax and regulatory relief, and reversing course from protectionism to greater freedom on trade – uncertainty regarding the outcome of the mid-term congressional elections no doubt is having some dampening effects on the economy. After all, if the make-up of Congress changes dramatically, so will policymaking from Congress.

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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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